SPDC flags concerns as tobacco sector seeks tax relief in budget

LAHORE: The tobacco industry has called on the government to introduce a third tax tier and lower Federal Excise Duty (FED) in the upcoming budget, raising alarms among economists and public health experts about the potential impact on tax compliance and health policy.

As budget consultations continue, the industry has proposed a reduced FED of PKR 3,800 per 1,000 cigarette sticks—down from the current PKR 5,050—and the creation of a new tier with a lower rate of PKR 2,525 per 1,000 sticks. The demands have surfaced amid criticism of the sector's tax practices.

During a roundtable discussion hosted by the Sustainable Development Policy Institute (SDPI), Asif Iqbal of the Social Policy and Development Centre (SPDC) alleged that leading tobacco firms have manipulated production data to influence taxation policy. Iqbal noted that although cigarette production increased by 19.2% during 2023–24, revenue from FED saw a decline of 2.4%, while GST collection dropped 26.1%, pointing to a worrying mismatch between declared production and tax receipts.

He further stated that while nine tobacco companies are enrolled in the government’s track and trace system, only three—accounting for 60% of the market—have implemented it using automated processes. This loophole, he said, allows underreporting and weakens tax monitoring efforts.

Experts have warned that acquiescing to these proposals could let the tobacco sector gain additional revenues of PKR 10–20 billion, at the cost of a significantly higher health burden for the country, potentially ten times greater than the revenue benefit.

Copyright Business Recorder, 2025