LAHORE - Philip Morris (Pakistan) Limited (PMPKL), formerly Lakson Tobacco Company Limited, one of the multinationals that contribute billions of rupees to tax revenue annually, has shut its cigarette manufacturing operations at one of its plants in the country mainly due to rising smuggling of tobacco products.

Philip Morris Pakistan, earlier in 2012 had also announced to reduce its production at this factory situated in Mandra, district Rawalpindi, due heavy tax burden and high cost.

Sources in commerce ministry observed that with high taxes, it was not possible for the company to compete with brands, which evade taxes, are far cheaper, make mockery of pictorial health warning laws, are more affordable, and attractive. They said that tax-evading cigarette makers sell more than 14 billion cigarettes in Pakistan every year but are also expanding their production facilities. Given the enforcement regime in Pakistan where cheap, non-complaint packs are available; it is obvious that operating a compliant business becomes difficult, they said. FBR officials claimed that the sale of tax-evaded cigarettes is causing annual loss of more than Rs14 billion to the national exchequer.

“Difficult economic conditions, significant increases in illegal trade of tobacco and low consumer affordability have impacted the company’s volumes. As a result, it has been decided to end cigarette production at PMPKL’s Mandra factory. However, production volumes will be increased at the company’s other two factories in Sahiwal and Kotri,” an official of the company said on Monday.

According to him, “Philip Morris (Pakistan) Limited (PMPKL) announced the decision of reorganization of its cigarette manufacturing operations as part of a strategic review to optimize efficiencies and best position the company for a strong and a viable future.”

Regretfully, the Mandra factory closure will affect around 100 employees, all of whom will be offered generous packages that will far exceed what is required by law.

Alejandro Paschalides, Managing Director of PMPKL observed that the decision of closing one manufacturing plant was an extremely difficult, yet necessary for PMPKL management, however like any business ‘we regularly review our plans and operations to ensure we are best positioned for the future, he added.’

He further said that the PMPKL remains committed to operating in Pakistan. The company’s business partners and adult consumers will be unaffected by the ‘reorganization’ decision.

Industry sources said that besides two large multinational manufacturers, a large number of small scale cigarette makers operate in KPK, Punjab and Azad Kashmir. They said that new cigarette manufacturing units are coming up and expansion in base of these tax evaded products is underway, plants are planned, as the state’s ability to check excise duty evasion erodes. They said that this will put in jeopardy the amount of over $ 750 million that is contributed by the tax-compliant cigarette industry every year to national exchequer.