Illegal Cigarettes in Pakistan

Federal Bureau of Revenue (FBR) introduced the third tier of excise duty on cigarettes to curtail the decline in tobacco revenue and illicit manufacturers from capitalizing on the market.

This has resulted in revenue growth of around 20 percent to Rs 88.5 billion during 2017-18 against Rs 74.1 billion collected during the same period last fiscal year. Such measures were deemed necessary because the illicit cigarette manufacturers have caused an estimated loss of over Rs 130 billion to the national exchequer in past five years.

Before the introduction of the third tier excise duty, revenue collections from tobacco industry stood at Rs 88.40 billion in the financial year 2013-14, Rs 102.88 billion in 2014-15 and Rs 114.19 billion in 2015-16. Thereafter, a sharp decline in revenue to Rs 74.1 billion was registered for the first time in many years in 2016-17 as the price gap between tax-evaded illegal cigarettes and legal tax-paid industry kept on increasing to a point where most of the smokers shifted their consumption to the tax evaded cigarettes being manufactured in Mardan and Azad Jammu & Kashmir (AJ&K).

The second meeting of the special committee, headed by Senator Kalsoom Parveen, was attended by Senators Dilawar Khan, Dr. Ashok and Azam Swati, in which the FBR shared the details about the third tiers of excise duty.

Industry representatives further explained that prior to the introduction of the third tier, the market share of illicit cigarettes had surged to 40 percent. This share was estimated by Nielsen, a market research agency that is well reputed globally and could be validated by FBR through an independent survey or audit of the tobacco sector.

The strategy of FBR showing consistency in tobacco revenue collection policy has decreased the market share of tax evaded brands from 40 percent to 35 percent. This shows that authorities are moving in the right direction to curb the menace of illicit trade and boost government revenues.

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