Latest news with #FED
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
The Hindu
5 days ago
- Business
- The Hindu
Rupee rises 65 paise against US dollar over hopes of Iran-Israel ceasefire
The rupee rose sharply by 65 paise to 86.13 against the US dollar in early trade on Tuesday (June 24, 202) as crude oil prices fell following hopes of a ceasefire between Iran and Israel. A weak greenback and a strong opening in the domestic equity markets further boosted the rupee, according to forex traders. Brent crude, the global oil benchmark, declined 2.73 per cent to USD 69.53 per barrel in futures trade as US President Donald Trump announced that Iran and Israel were close to a ceasefire. At the interbank foreign exchange, the local unit opened at 86.07 against the US dollar before dipping to 86.13, up 65 paise against the greenback from its previous close. The rupee had plunged 23 paise to close at a five-month low of 86.78 against the US dollar on Monday (June 23). "Trump said overnight that a ceasefire between Israel and Iran has been done while Iran has not confirmed it as yet. However, the market has taken this into consideration with oil falling below USD 70," Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said. "The USDINR gained to almost 86.00 levels and opened at 86.07 after the ceasefire announcement by Mr. Trump. The markets now await FED Chief Powell's testimony on Tuesday and Wednesday in which he may indicate about cutting of rates to the Senate and House," he said. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.29 per cent lower at 98.13. The domestic equity market rebounded from Monday's losses as Sensex jumped 930.7 points to 82,827.49, while Nifty surged 278.95 points to 25,250.85. Foreign institutional investors (FIIs) offloaded equities worth ₹1,874.38 crore on a net basis on Monday, according to exchange data.
News18
5 days ago
- Business
- News18
Rupee Rises 65 Paise To 86.13 Against US Dollar Amid Iran-Israel Ceasefire Talks
Last Updated: The rupee rose sharply by 65 paise to 86.13 against the US dollar in early trade on Tuesday as crude oil prices fell following hopes of a ceasefire between Iran and Israel. The rupee rose sharply by 65 paise to 86.13 against the US dollar in early trade on Tuesday as crude oil prices fell following hopes of a ceasefire between Iran and Israel. A weak greenback and a strong opening in the domestic equity markets further boosted the rupee, according to forex traders. Brent crude, the global oil benchmark, declined 2.73 per cent to USD 69.53 per barrel in futures trade as US President Donald Trump announced that Iran and Israel were close to a ceasefire. At the interbank foreign exchange, the local unit opened at 86.07 against the US dollar before dipping to 86.13, up 65 paise against the greenback from its previous close. The rupee had plunged 23 paise to close at a five-month low of 86.78 against the US dollar on Monday. 'Trump said overnight that a ceasefire between Israel and Iran has been done while Iran has not confirmed it as yet. However, the market has taken this into consideration with oil falling below USD 70," Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said. 'The USDINR gained to almost 86.00 levels and opened at 86.07 after the ceasefire announcement by Trump. The markets now await FED Chief Powell's testimony on Tuesday and Wednesday in which he may indicate about cutting of rates to the Senate and House," he said. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.29 per cent lower at 98.13. The domestic equity market rebounded from Monday's losses as Sensex jumped 930.7 points to 82,827.49, while Nifty surged 278.95 points to 25,250.85. Foreign institutional investors (FIIs) offloaded equities worth Rs 1,874.38 crore on a net basis on Monday, according to exchange data.
Time of India
5 days ago
- Business
- Time of India
Rupee rises 65 paise to 86.13 against US dollar over hopes of Iran-Israel ceasefire
The Indian rupee surged against the US dollar following a drop in crude oil prices, fueled by ceasefire hopes between Iran and Israel. The Indian rupee surged by 65 paise to 86.13 against the US dollar following a drop in crude oil prices, fueled by ceasefire hopes between Iran and Israel. A weaker dollar and strong domestic equity market openings further bolstered the rupee. Brent crude fell 2.73% to USD 69.53 a barrel after Trump's ceasefire announcement. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads The rupee rose sharply by 65 paise to 86.13 against the US dollar in early trade on Tuesday as crude oil prices fell following hopes of a ceasefire between Iran and Israel.A weak greenback and a strong opening in the domestic equity markets further boosted the rupee, according to forex traders. Brent crude , the global oil benchmark, declined 2.73 per cent to USD 69.53 per barrel in futures trade as US President Donald Trump announced that Iran and Israel were close to a the interbank foreign exchange , the local unit opened at 86.07 against the US dollar before dipping to 86.13, up 65 paise against the greenback from its previous rupee had plunged 23 paise to close at a five-month low of 86.78 against the US dollar on Monday."Trump said overnight that a ceasefire between Israel and Iran has been done while Iran has not confirmed it as yet. However, the market has taken this into consideration with oil falling below USD 70," Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said."The USDINR gained to almost 86.00 levels and opened at 86.07 after the ceasefire announcement by Trump. The markets now await FED Chief Powell's testimony on Tuesday and Wednesday in which he may indicate about cutting of rates to the Senate and House," he the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.29 per cent lower at domestic equity market rebounded from Monday's losses as Sensex jumped 930.7 points to 82,827.49, while Nifty surged 278.95 points to 25, institutional investors (FIIs) offloaded equities worth Rs 1,874.38 crore on a net basis on Monday, according to exchange data.
