Increase taxes anymore and we leave: British American Tobacco to Pak govt

Multinational company warns country's leadership against increasing taxes on tobacco

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British American Tobacco (BAT) said  on Tuesday it could withdraw its investment in Pakistan if the government proceeds with further tax increases on cigarettes in the upcoming budget.

The multinational company, which produces global brands including Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans, said existing taxes have already led to a 38 per cent decline in sales and a concerning expansion of the illicit cigarette market to 58 per cent, according to a report by Pakistani newspaper The Tribune Express.

BAT conveyed its concerns during separate meetings with Prime Minister Shehbaz Sharif and Lt General Sarfraz Hussain, Special Investment Facilitation Council (SIFC) national coordinator. In these meetings, Michael Dijanosic, the regional director for Asia Pacific, Middle East, and Africa at BAT, expressed apprehensions about the diminishing regulated tobacco sector and the escalating prevalence of illicit cigarette trade, attributing these challenges to the Pakistani government's fiscal policies.

How much does BAT contribute to Pakistan's economy?

BAT's local affiliate, Pakistan Tobacco Company (PTC) paid around around Rs 220 billion (Pakistani Rupees) this financial year to the government, out of the total Rs 265 billion generated by the entire tobacco sector in the country.

Dijanosic, speaking to The Tribune Express, also highlighted the company's substantial contributions and its investments, including the establishment of a Global Business Centre in Lahore, with plans for further expansion.

The company expressed apprehensions about the sustainability of its operations in Pakistan amid successive tax hikes, which have failed to curb smoking but instead led consumers to shift towards cheaper illicit brands. Dijanosic emphasised that a repetition of last year's tax increase could prompt BAT to exit Pakistan, citing a scenario where tax collections fall short of the sector's potential.

Dijanosic also noted that despite substantial tax hikes, government revenues only saw an 8 per cent growth in real terms, owing to the sales slump.

Rise of illicit tobacco brands in Pakistan

The surge in illicit cigarette sales, now comprising 58 per cent of the market, has prompted concerns about the viability of the tobacco sector. BAT stressed the need for discussions with the government, emphasizing the forthcoming budget as a critical juncture.

While acknowledging the challenges faced by the tobacco sector, Prime Minister Shehbaz Sharif approved the formation of a committee to address export-related regulatory hurdles. PTC has been a significant contributor to Pakistan's export earnings since 2019, with exports targeted at $60 million for the next financial year, contingent upon resolving regulatory issues.

The company's declaration coincides with dwindling investment trends in Pakistan, reaching a 50-year low of 13.1 per cent of GDP. In response, the government has established a new SIFC Cabinet Committee, incorporating key stakeholders to address investment concerns.

Despite the recognition received from the prime minister for tax contributions, heavy taxation remains a pressing concern for regulated tobacco manufacturers, exacerbating disparities between regulated multinationals and unregulated local brands thriving in collaboration with government departments.