PMI blames Pakistan plant closure on illicit tobacco

High levels of illicit tobacco in Pakistan have led to tobacco giant Philip Morris International deciding to shutter a local production facility.

High levels of taxation in the Pakistani market means that the public is increasingly turning to untaxed, illicit supplies, and that means the plant is no longer viable, according to a report in The News, which cites Oxford Economics data noting the market share of illicit cigarette brands in the tobacco industry in Pakistan was 42 per cent in 2017.

PMI maintains says that a hike in excise duty to 56 per cent has meant that the price between legal and illegal cigarettes is now around 130 per cent, driving the illicit market and cutting back licit volumes. PMI said in its fourth-quarter results statement that overall Pakistan saw increased shipment volumes in 2018 but that was driven mainly by heated tobacco products.

A cigarette-manufacturing facility in Kotri, Sindh, will be shut down with the loss of 194 jobs, says the company, although it will continue to operate a facility in Sahiwal and a threshing plant in Mardan. At the moment the company employs just over 900 people in the country.

Multinationals PMI and British American Tobacco (BAT) together accounted for nearly all legal domestic sales in Pakistan in that year, says OE.

In July 2017, the Pakistan government changed the excise duty rules by introducing a new third tier covering low-cost cigarette brands in an effort to encourage producers of illicit tobacco to formally enter the market. OE says that seems to have had some impact with illicit use declining around 4% in the latter half of the year.