KARACHI: Retailers and wholesalers have started stockpiling of cigarettes to make a quick buck in the run-up to budget 2016-17 when new taxes and duties are set to push up prices.

Market sources said retailers and wholesalers will enjoy profits twice – first by artificially creating shortage a few days prior to the budget and demanding extra money from consumers and secondly, on the piled-up stocks post-budget when the price would increase officially.

So far the shelves of retailers do not reflect any sign of shortage. However, despite having ample stocks, retailers will remove cigarettes from the shelves as budget nears.

A retailer said the manufacturer of Morven Gold brand pushed up the rates in March to Rs70 from Rs65 a pack.

Some consumers said retailers have already been overcharging consumers on many locally-produced brands as against the company’s original price while the authorities seem to have no control over this profiteering.

They said the company price of Gold Leaf is Rs115 per pack but retailers sell it at Rs125 since the last budget. Same is the case with Capstan which is selling at Rs70 instead of its original price of Rs65.

Retailers offer different view on the supply situation of cigarettes prior to budget. Some said they are getting five cartons (dandas) from the supplier as against the order of 10 cartons while other retailers said suppliers are providing 6-7 cartons instead of the 10 cartons.

Meanwhile, some cigarette manufacturers have slowed down production capacity while others have completely shut down operations. Sources said stockpiling of cigarettes has been going on since February.

A cigarette maker said his company halted production for the last one week due to unsold stocks.

As per the figures of Pakistan Bureau of Statistics (PBS), local cigarette production plunged by eight per cent to 37 billion sticks in July-February 2015-2016 as compared to 40bn in the same period last fiscal year.

In 2014-2015 cigarette production fell to 62.66 from 64.5 in 2013-14 while it was 67.3bn in 2012-13.

A cigarette maker blamed the availability of cheap Mardan brands, influx of smuggled cigarettes and alternative tobacco chewing products behind declining production.

Philip Morris Pakistan Limited in its quarterly report ended March 31, 2016 said ‘non-tax paid tobacco brands continue to adversely impact the legitimate industry’s volume’. Excise driven price increases further drives the price differential between the tax-paid and tax-evaded products creating unfair competition for the legal products, the report noted.

Taking an average price of Rs5 per cigarette and average yearly production of 64bn cigarettes, Pakistani spend over Rs250bn a year on smoking. However, taking the volumes of imported and smuggled cigarettes, the figures would cross over Rs 300bn.

Published in Dawn, May 14th, 2016