Pakistan Tobacco and Lakson
Tobacco to suffer due to new system
By Syed M. Aslam
Sep 27 - Oct 03, 1999
An agreement signed by the Central Board of Revenue (CBR), the premier
tax collecting agency, with the six Mardan-based cigarette manufacturers to pay a fixed
monthly taxation, will give them an unfair edge over two other major cigarette
manufacturers who collectively paid over Rs 17 billion in duties and taxes to the
exchequer last year.
According to sources, the CBR signed an agreement with six
companies Souvenir Tobacco, Saleem/Universal Tobacco, Imperial Tobacco, United
Tobacco, Sarhad Tobacco and Excel/Khyber Tobacco on October 27, 1998. The agreement
comprised of a minimum monthly payment schedule per month for each of the six
manufacturers which totalled Rs 31.667 million all together.
As of the first of July this year, sources told PAGE, the agreement was
implemented and would be good till June 30 next year. According to details provided to
PAGE, Souvenir and Saleem/Universal Tobacco, owned by the same person, are required to pay
Rs 7.584 million and Rs 6.884 million as tax each month under the agreement. The minimum
monthly payment paid by the other four companies is: Imperial tobacco, Rs 6.884 million;
United Tobacco, Rs 3.984 million; Sarhad Tobacco, Rs 3.431 million; and Excel/Khyber
Tobacco, Rs 2.9 million.
The two major cigarette manufacturing and marketing companies of
Pakistan the Pakistan Tobacco Company (PTC) and Lakson Tobacco Company, which
collectively enjoy over 90 per cent share of the national market will be the worst
hit by the agreement signed between the CBR and the above six companies.
A highly placed source in the tobacco industry, who requested PAGE not
to mention by name, questioned the discriminatory fixed taxation allowed to these six
manufacturers adding that it undermines the very basis of the level playing field for the
two major tax and duty contributors to the exchequers.
The fixed taxation granted to these six companies would allow them
exemption from the Central Excise Duty (CED) which for the two major manufacturers come to
an average of 60 per cent. In addition, it would also allow the former an undue exemption
in lieu of sales tax which are being levied on PTC and Lakson.
The source expressed fears that uneven playing field would result in
reduced sales volume for both the PTC and Lakson Tobacco due to the wholesale dumping of
products by the six beneficiaries of the fixed taxation at the ultimate loss of revenue to
He asked about the legitimacy of the two sets of taxation, basically
the CED which helps the government earn an unmatched amount of revenue for the government
from the two manufacturers particularly when the fixed monthly taxation from the six
Mardan-based beneficiaries would help government earn just Rs 380 million annually, he
Criticizing the two sets of CED for the tobacco industry he said that
any reduction in sales of PTC and Lakson would also reduce the revenue from the sales tax
for the government as in addition to the 63 per cent CED the government would also lose 15
per cent sales tax which also comprises the retail price of cigarettes.
He asked the government to reconsider its decision to allow two sets of
CED which is discriminatory against the payers of two major duties and taxes and also the
sales tax collectors which contribute such massive revenue to the exchequer.
It is significant to see that despite a significant improvement in
sales which increased 15 per cent to Rs 7.9 billion and operating profit which increased
by 85 per cent to Rs 181 billion during the half-year ended June 30 this year over the
corresponding period last year the PTC suffered a post-tax loss of Rs 27.5 million and an
after-tax loss of Rs 42.4 million. The company blamed it for the continued decline in real
cigarette prices over the last few years .
The PTC increased the price of its premium selling brand, Gold Leaf
which contributes 28 per cent in terms of production and 55 per cent in terms of sales, by
over 12 per cent after the federal budget this year.
Industry sources told PAGE that the total cigarette market of Pakistan
is around 59 billion sticks annually out of which between 85-90 per cent is shared by
Pakistan Tobacco Company and Lakson Tobacco collectively.
A highly placed source at PTC told PAGE that the discriminatory
taxation is feared to hurt the productivity of the company by a drastic two billion sticks
this year. The absence of level playing field is feared to reduce the production from 22
billion sticks last year to 20 billion sticks this year the ultimate cost of which would
be borne by the government which not only gets 63 per cent revenue primarily in CED plus
15 per cent sales tax, he added.
As , he added, in real terms there has been no increase in prices of
cigarettes during last many years. For instance, the price of Gold Leaf has increased 38
per cent during last years or just 6.75 per cent annually which remains much lower than
the inflation rate.
Financial Performance of Pakistan Tobacco and Lakson Tobacco
PTC (Year ended 31.12.1998) Lakson (Year ended 30.6.1998)
Rs 92.3 m
Rs 324 m