PTC faces an export crisis over regulatory hurdles

PTC faces an export crisis over regulatory hurdles

Pakistan’s second-highest tax-paying firm and recipient of the Prime Minister’s Award for Excellence, the Pakistan Tobacco Company (PTC), is on the verge of losing a third of its export orders for the next fiscal year due to production-related regulatory hurdles.

PTC had a mid-May deadline to ship cigarettes in packs of 10 to Sudan, but the Ministry of Health’s packaging-related regulations have stood in the way, according to a company official.

PTC received a $20.5 million export order from Sudan, which required the order to be shipped in packets of 10 cigarettes each. Pakistani regulations prohibit the sale of cigarettes in small packs of 10, but there is no such restriction in Sudan, according to PTC officials.

PTC has been exporting cigarettes to various world markets since 2019 and has so far earned $156 million for the country. For the coming fiscal year, the company is targeting $60 million in exports, but a third of the order is at stake due to the Health Ministry’s refusal to amend the Statutory Regulatory Order (SRO) for export purposes.

Last month, Prime Minister Shehbaz Sharif awarded the second highest taxpayer award to PTC in all tax categories. PTC was the only non-government firm among the top five recipients of the highest taxpayer award in the all-tax category. One reason for earning the award is the heavy indirect tax on tobacco to discourage smoking.

Last year, the company paid Rs148 billion in taxes in the form of federal excise duty and sales tax—an amount essentially paid by smokers due to heavy taxes to discourage smoking in Pakistan.

The highest taxpayer is Pakistan State Oil (PSO).

It seems that the government is only interested in getting revenue from these firms and is not inclined to deal with their genuine business related issues.

According to the Prohibition of Sale of Cigarettes to Minors regulations, no cigarette manufacturer can manufacture, sell, or offer for sale any cigarette unless it is in a packet of at least 20 cigarettes in Pakistan.

Ironically, despite this rule, customers can buy even one cigarette, which defeats the purpose of selling cigarettes in packs of 20. PTC has asked the government to amend the rules and limit the restriction on the sale of 10 packs to domestic use only.

Pakistan and Sudan are signatories to the Framework Convention on Tobacco Control (FCTC) by the World Health Organization. It is allowed to sell cigarettes in packs of 10 in Sudan.

Instead of making a decision, the Ministry of Health has referred the matter to the Ministry of Foreign Affairs to get its input on the matter based on the FCTC agreement.

The company has lost international export orders to Gulf countries in 2019 due to lack of clarity on the manufacture of 10-pack cigarettes. At that time, the Ministry of Commerce had given permission for export, but the Ministry of Health did not agree.

Normally, exporting companies follow the rules and regulations of the importing country—a principle ignored by Pakistan’s Ministry of Health.

After the increase in duty on locally produced tobacco over the past few years, contraband cigarettes are being sold openly in Pakistan without fear of the law.

Heavy taxes have hurt the balance sheets of multinational controlled tobacco manufacturers, but unregulated local brands are thriving in their businesses along with government departments.

Local manufacturers sell 20s, 25s, and 30-packs of cigarettes for less than the minimum allowed price, making smoking affordable in Pakistan.

The company has categorically assured that it is not interested in selling 10-packs in Pakistan and has asked for a change in regulations to accommodate the Sudanese order, according to a PTC official.

Officials of the company said that it is not economically viable to sell the 10 stick packets in Pakistan due to the nature of taxation. The official said that the price of a pack of 20 cigarettes in Tier-I is Rs483 or more inclusive of GST, adding that the small packet tax will be over Rs275. In Tier-II low taxation category, the price of each PTC packet is Rs212, so 10 packs will be more than Rs110, while packs of 20 and 30 cigarettes of tax-exempt brands are sold at Rs130 and less, he added.

Multinational companies with factories in Bangladesh and Indonesia are more into exports. The PTC official said, if Pakistan does not allow the export of cigarettes in small packets, the order may be diverted to Bangladesh or Indonesia.

The availability of smuggled and tax-evaded cigarettes in the Pakistani market, including the sale of a cigarette, indicates a lack of effective tobacco control and poor compliance, which also leads to billions of rupees in annual tax evasion.

PM Sharif no Friday reiterated his resolve to clean the country from smuggling and directed the authorities to speed up efforts across the country against the menace.

The PM was informed that the list of smugglers, hoarders, and their facilitators had been forwarded to law enforcement agencies and provincial governments. The Prime Minister ordered the removal of the identified officials from their respective positions and initiated disciplinary proceedings against them.

The Society for the Protection of the Rights of the Child (SPARC), a foreign-funded non-governmental organization, has responded to requests to amend export packaging to a 10-bar packet.

SPARC said Friday that health-related activists have expressed concern about its potential impact on children and low-income groups across the country.

SPARC said that tobacco manufacturers had made similar attempts in the past, but the Ministry of Health did not issue a certificate without objection. The application for 10-packs by the tobacco industry is particularly worrying, he added. It will not only undermine progress made in tobacco control but also directly target children and low-income individuals who are most vulnerable to the harmful effects of tobacco use.

Contrary to SPARC’s demands, PTC has requested changes in the regulations to the export level.

SPARC urges the government not to allow the manufacture or sale of 10-packs and to prevent the exploitation of children and low-income groups by the tobacco industry.

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