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Business Recorder
2 days ago
- Business
- Business Recorder
The smokescreen over Pakistan's cigarette taxes: a case for urgent fiscal scrutiny
As Pakistan continues to navigate persistent fiscal challenges, the recent budget documents for FY 2025-26, presented this month, contain an astonishing anomaly that demands immediate attention. It concerns the Federal Excise Duty (FED) on cigarettes – a seemingly mundane line item that, upon closer inspection, reveals a perplexing discrepancy between official production figures and actual tax collection, hinting at either profound systemic failure or, more troublingly, a strategic manipulation of numbers. Let's dissect the figures that raise eyebrows for any economist, or indeed, any discerning citizen. For the fiscal year 2023-24, the FBR successfully collected PKR 237.1 billion from cigarette FED. Building on this, the FBR initially set an ambitious target of PKR 323.7 billion for the current fiscal year, FY 2024-25, which concludes on June 30th. This optimism seemed plausible, especially considering data from the Pakistan Bureau of Statistics (PBS), which reported a robust 13.1 percent growth in cigarette production during July-March of FY 2024-25 compared to the previous year. However, the revised estimates in the FY 2025–26 budget documents present a stark and perplexing contrast. The FBR now anticipates collecting a mere PKR 147 billion for the entire FY 2024-25. This isn't just a shortfall; it's a colossal 54.6% reduction from their own initial target, and a staggering 38% less than what was collected last year, despite reported production growth. A closer look at the data deepens the concern. The first six months of FY 2024-25 saw a FED collection of PKR 102.895 billion from 17,627 million sticks, indicating an effective tax rate of PKR 5.837 per stick. This rate implies that around 93 percent of the market comprises economy brands, and 7 percent premium — a plausible split. When we extend this calculation using PBS's reported production for the next three months (Jan-Mar 2025) — 8,746 million sticks — it projects an additional PKR 51.1 billion in revenue. Adding these figures, the estimated FED collection for the first nine months (July-March 2025) stands at approximately PKR 153.95 billion. Here is the crux of the conundrum: This PKR 153.95 billion, reflecting nine months of estimated revenue based on official production, already exceeds the FBR's own revised full-year estimate of PKR 147 billion. For the FBR's revised estimate to hold true, it would imply that for the entire April-June 2025 quarter, the government expects not just zero, but a statistically impossible negative collection of nearly PKR 7 billion. Alternatively, to meet the PKR 147 billion revised estimate, and given the first six months' collection, the FBR must assume virtually no premium brand production in the January-March quarter (as the numbers align perfectly with only the minimum tax rate), and absolutely zero cigarette production and zero tax collection in the final three months of the fiscal year. Such a scenario is economically untenable. So, what explains this extraordinary discrepancy? The plausible explanations are deeply concerning for Pakistan's fiscal health: Firstly, this could be a deliberate attempt to under-report revenue to build a narrative for lowering tax rates. The argument, often peddled by the industry, is that high taxes fuel illicit trade, and therefore, lower taxes are needed to bring the market into the formal net. However, if PBS's reported production is indeed growing, the problem isn't just illicit trade; it's that legal, declared production isn't translating into tax revenue. This points to a massive, systemic leakage within the formal tax net, potentially through widespread under-declaration or other evasive tactics post-production. Lowering tax rates in such a scenario would simply legitimize current tax avoidance, short-changing the national exchequer. Secondly, even if not deliberate manipulation, it signals a profound and alarming disconnect between declared economic activity and the FBR's ability to collect taxes. It suggests that a significant volume of legally produced cigarettes is somehow escaping the tax system, whether through a broken track-and-trace mechanism, ineffective enforcement, or fundamental flaws in revenue assessment. The fact that the FBR's own internal projections are so far off from what simple arithmetic of reported production suggests, is a damning indictment of forecasting and collection capabilities. The implications for Pakistan are severe. At least PKR 50 billion in lost tax revenue from a segment known for its high consumption directly translates into less funding for critical public services and poverty alleviation programs. It erodes public trust in the integrity of our financial data and sets a dangerous precedent for other sectors. As Pakistan embarks on a new fiscal year, this issue must not be dismissed as a mere accounting error. It is a matter of transparency, accountability, and the credibility of the nation's tax system. Moreover, the stakes extend beyond fiscal integrity – cigarette taxation is also a critical public health tool. Weak enforcement and revenue leakage not only deprive the state of much-needed funds but also undermine efforts to curb tobacco consumption, which remains a leading cause of preventable illness and death in Pakistan. A thorough, independent investigation is essential, along with urgent reforms to restore integrity to the taxation of one of the country's most heavily consumed and harmful products. Without decisive action, the smokescreen surrounding cigarette taxation will continue to obscure a harsh reality: Pakistan is haemorrhaging billions in revenue, and its citizens deserve to know why. (The writer is Principal Economist, SPDC) Copyright Business Recorder, 2025
Business Recorder
2 days ago
- Business
- Business Recorder
WHO warns unchanged FED on cigarettes may boost consumption
ISLAMABAD: World Health Organization (WHO) has expressed serious concern that the Federal Cabinet decision to keep Federal Excise Duty (FED) rates on cigarettes unchanged in budget (2025-26) would increase cigarette consumption in Pakistan. According to a report of the WHO on post-budget analysis and review issued on Wednesday, since February 2023, the Federal Excise Duty (FED) rates on cigarettes have remained unchanged. The Cabinet has maintained these rates in the proposed budget for FY 2025–26. With inflation rising by 26% over this period, the real value of FED rates and cigarette prices has declined, and this trend is expected to continue in the absence of any adjustment. For FY 2024–25, WHO has estimated cigarette production at approximately 37 billion sticks, an increase compared to the previous fiscal year—and projected FED revenue at Rs. 208 billion. Given the decision to keep FED rates unchanged for FY 2025–26, nominal cigarette prices are likely to remain flat, implying a further decline in real prices. This will likely result in increased cigarette consumption. Based on a simple simulation model, cigarette production (and consumption) is projected to reach around 38 billion sticks, generating Rs 217.6 billion in FED revenue in FY 2025–26. Alternatively, a policy intervention involving a Rs 39 per pack increase in FED could reduce cigarette consumption by an estimated 10.7%, bringing production down to around 34 billion sticks. This policy would also boost FED revenues by 20.9% compared to the current plan, resulting in higher fiscal and public health gains. Notably, the government has set a revised FED revenue target of only Rs. 147 billion from cigarettes in FY 2024–25—a surprisingly conservative figure, considering actual collections reached Rs 157 billion during the first nine months of the fiscal year. We estimate that total FED revenue for FY 2024–25 will reach approximately Rs. 208.2 billion, nearly Rs. 60 billion more than collected in the first three quarters. Estimated cigarette FED collection in FY 2024/25. Based on PBS's data, the average annual growth rate of cigarettes production from July 2024 to April 2025 is 12.4% higher when compared to July 2023/April 24. By assuming the same annual growth rate for the next two months, the estimated production of cigarettes for 2024-25 will be around 37 billion sticks. By applying the above market shares and FED and GST rates, it is important to note that the estimated FED revenue collection for 2024-25 is 208.2 billion Rs. This is much higher than 147.8 billion Rs of the government's revised target for 2024-25. The total indirect tax collection from cigarettes (FED+GST) in 2024-25 will be around Rs 275.7 billion. To protect both public health and government revenue, Pakistan's tobacco tax policy should be reassessed and strengthened. This includes regular adjustments to the Federal Excise Duty (FED) rates and stricter oversight of industry practices, such as production front loading ahead of the budget and manipulation of brand mixes. However, the current budget proposal for cigarette FED rates does not incorporate these tax policy corrections needed to meet revenue and health objectives. With this decision, the government and FBR hope to control cigarette illicit manufacturing and smuggling. To address those challenges, however, proper tax administration measures should be implemented, such as effective controls of the distribution movements of tobacco leaves, used cigarette machinery and other key cigarette inputs inside the national territory, WHO added. Copyright Business Recorder, 2025
New Indian Express
28-05-2025
- Business
- New Indian Express
Tipplers feel pinch as liquor prices hiked in Puducherry after steep increase in excise duty
PUDUCHERRY: Tipplers in the Union Territory will now have to shell out more for their drink as liquor prices across all categories—Indian Made Foreign Liquor (IMFL), beer, and wine—have gone up, following a steep hike in Excise Duty (ED) and Additional Excise Duty (AED). The revised rates, notified by the Department of Revenue and Disaster Management (Excise), came into effect on Wednesday. This is the first hike in excise duties since July 2019. As per the official notification, the ED for cheaper and ordinary IMFL brands (with a declared price below ₹600 per case) has been raised from ₹100 to ₹110 per proof litre. For medium and premium brands (priced at ₹600 or above per case), the ED has increased from ₹115 to ₹125 per proof litre. The ED on wine has risen from ₹25 to ₹30 per bulk litre, while for beer, the rate has gone up from ₹10 to ₹12 per bulk litre. AED slabs have also been revised with a rationalization of slabs. The new AED rates for IMFL range from ₹85 to ₹325 per proof litre. For beer, it ranges between ₹33 and ₹42 per bulk litre, while for wine, it spans from ₹50 to ₹145 per bulk litre.
Sunday World
04-05-2025
- Sunday World
GAA TV volunteer caught with 100,000 counterfeit cigarettes in pub carpark avoids jail
Daire McKenna pleaded guilty to having tobacco which did not have the appropriate tax stamp attached A 41-year-old man found with 100,000 counterfeit cigarettes in a pub carpark has avoided jail after he donated €5,000 to charity. Daire McKenna, Pier Rampart, Derryadd, Craigavon, Co. Armagh, pleaded guilty to having tobacco which did not have the appropriate tax stamp attached. A second charge of evasion of Excise Duty was taken into consideration. Dundalk Circuit Court heard how the defendant, an Armagh GAA TV volunteer who previously received a nine-year sentence for possession of explosives, drove into the car park of the Rosewood Country Club, Ravensdale, Dundalk and was stopped by Gardaí. Det. Gda. Adrian Buckley gave evidence that this occurred at 5pm on October 29, 2020, and in the Volvo being driven by Mr McKenna boxes of cigarettes were located in the boot. A mobile phone and £900stg were also seized by Gardaí. It was later established that the cigarettes were counterfeit, and that there was a potential €56,000 loss to the Exchequer. An arrangement was later made for the father of two to attend a garda station voluntarily but he didn't turn up and was arrested on August 14, 2021 at Tayto Park and brought to Ashbourne Garda Station. There were five previous convictions in Northern Ireland, including the nine-year term handed down in 2008 for possession of explosives with intent to endanger property and two convictions for each of common assault and obstructing police. Daire McKenna Counsel said that Mr McKenna was married 12 years and worked as a self-employed plasterer. He had taken on a second job as a driver. He was a volunteer with Armagh GAA TV videoing and livestreaming matches, attending 200 games in the last two years. The court was asked to consider a suspended sentence. He was a different man than five years ago, and willing to make a suggested financial contribution of €5,000. On the adjourned date, the court was told that the defendant had taken out a Credit Union loan for the €5,000. Judge Dara Hayes directed that it be given to Turas Addiction Services in Dundalk. Read more Bomb plot GAA man jailed for CIRA explosives haul is 100k Smokey Bandit Passing sentence, the judge said that aggravating factors were the serious nature of the offending and the quantity of cigarettes for which there was no innocent explanation. There were 100,000 counterfeit cigarettes, not just a few cartons. This was clearly an attempt to some degree to trade in illicit cigarettes. In mitigation, there was his remorse, plea of guilty and some form of restitution. There had been no subsequent adverse attention for coming on five years. Judge Hayes imposed a 21-month sentence, suspended in its entirety for 21 months, on condition the defendant keeps the peace and is of good behaviour. A forfeiture order was made for the £900 and the court ordered the destruction of the cigarettes and mobile phone.
Irish Independent
01-05-2025
- Irish Independent
Armagh GAA volunteer avoids jail over Louth cigarettes haul
Francis Carroll The Argus A 41-year-old man found with 100,000 counterfeit cigarettes in a pub carpark has avoided jail after he donated €5,000 to charity. Daire McKenna, Pier Rampart, Derryadd, Craigavon, Co. Armagh, pleaded guilty to having tobacco which did not have the appropriate tax stamp attached. A second charge of evasion of Excise Duty was taken into consideration.
