Philip Morris Pakistan : Transmission of Quarterly Report for the Quarter Ended June 30,2023

Company Information

FACTORIES

1. G.T ROAD, QUADIRABAD, DISTRICT: SAHIWAL (PUNJAB)
2. LEAF DIVISION COMPLEX, 22ND KM, MARDAN SWABI ROAD, MARDAN (KPK)

SHARE REGISTRAR

CENTRAL DEPOSITORY COMPANY OF

PAKISTAN (CDC)

CDC HOUSE, 99-B,BLOCK-B, S.M.C.H.S.,

MAIN SHAHRAH-E-FAISAL, KARACHI -74400

Website : http://philipmorrispakistan.com.pk

Email : pmpk.info@pmi.com

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Director's Report

Despite entering into a nine-month Standby Agreement (SBA) with the International Monetary Fund (IMF), Pakistan continues to face a myriad of challenges due to political instability, limited foreign exchange reserves, rupee devaluation, escalating inflation, and the aftermath of severe floods. In July 2023, the State Bank of Pakistan maintained the policy rate at 22 percent , following a 100-basis point hike in June 2023. This is the highest policy rate since 2008. These economic pressures, combined with substantial spikes in taxes and restrictions on remittances, have significantly eroded investor confidence, leading to an increasingly arduous operational landscape for businesses.

In addition to the Government's announcement of targeted tax revenue of PKR 200 billion from the tobacco industry in the August 2022 mini-budget, a supplementary budget was introduced in February 2023 with further elevated revenue goals from the tobacco sector beyond the initial August 2022 target. With the supplemental FED increase in cigarettes by 150%, the cumulative increase in FED in the current fiscal year stands at more than 200%. The minimum price stipulated by tax laws for FED and Sales Tax collection has been raised from PKR 70.1 to PKR 127.4 per pack. However, current market observations revealed that the tax-evaded cigarettes are being sold at an average price of PKR 100 per pack, significantly below the minimum price. This unanticipated and unparalleled hike in cigarette excise has inadvertently favored tax-evaded cigarette manufacturers, with non-tax-paid brands now occupying around 48% of the market share and resulting in an estimated loss of PKR 240 billion to the National Exchequer.

Notably, the IMF has highlighted implementation gaps in the Track and Trace system, which have bolstered the presence of local tax-evaded and smuggled brands, thus undermining the benefits of recent FED measures. The extraordinary FED increase has led to a shortfall of over PKR 80 billion in revenue targets established by the Government for the tobacco industry. The Track & Trace System is implemented for electronic monitoring and tracking of specified taxable goods (including tobacco) by affixing tax stamps with the aim to enhance tax revenues, curtail counterfeiting and tax evasion, and to prevent smuggling of non-tax paid goods. However, only Philip Morris (Pakistan) Limited and two other companies have fully integrated the system, while 20 registered local manufacturers have recently signed a tri-partite agreement and are expected to complete the installation by November 2023. Continuous advancements in the track-and-trace rollout will be pivotal to fully capitalize on recent taxation increases.

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