The government of Pakistan is reportedly facing significant pressure from the World Health Organization (WHO) to substantially increase the Federal Excise Duty (FED) on all cigarette brands in the upcoming budget for fiscal year 2025-26.
Sources indicate that the Federal Board of Revenue (FBR) is under international pressure to implement higher taxes on cigarettes, primarily driven by public health concerns associated with smoking.
Health Concerns vs. Sales Volume
Addressing concerns about the potential impact of increased FED on the sales volumes of major cigarette manufacturers, FBR officials reportedly maintained that a decrease in sales does not negate the fact that smoking is injurious to health. They highlighted the existence of international minimum tax standards for cigarette sales, suggesting that health considerations are a primary driver for tax policy despite potential effects on legal market size. According to the Sustainable Policy Development Centre (SPDC), tobacco use tragically claims over 160,000 lives in Pakistan every year.
Despite the push for higher taxes, a major challenge remains the prevalence of illicit cigarette trade. During a recent meeting of the National Assembly’s Standing Committee on Finance, FBR Chairman Rashid Mahmood Langrial reportedly acknowledged a lack of adequate enforcement mechanisms to effectively combat the market for illegal cigarettes across the country.
The FBR Chairman disclosed the scale of the challenge, stating that due to limited manpower within the tax machinery, only about one out of every ten trucks carrying smuggled or illicit cigarettes is confiscated.
Provincial Support Sought for Retail-Level Control
To improve enforcement, particularly at the retail level, the FBR plans to seek assistance from provincial law enforcement agencies. The FBR Chairman indicated that any cigarette pack sold without the mandatory tax stamp is considered illegal. By leveraging the resources of provincial law enforcement, the FBR aims to enhance its capacity to curb the trade of such illegal products. The FBR is currently developing a standard operating procedure (SOP) to facilitate coordinated enforcement efforts with these agencies.
The proposed increase in FED aims to make legal cigarettes less affordable as a public health measure, while the focus on enhancing enforcement seeks to ensure that higher taxes do not inadvertently fuel a larger black market for illicit tobacco products.
