Documented cigarette industry: FBR tax collection may fall significantly

ISLAMABAD: The Federal Board of Revenue (FBR) tax collection from documented cigarette industry is expected to fall significantly as compared to last year, contrary to recent optimistic projections, highlighting growing challenges in the sector amid rising smuggling and regulatory inefficiencies.

Industry sources dismissed NGOs’ version that the government’s revenue collection from the cigarette industry for fiscal year 2024-25 would reach PKR 285 billion.

However, industry insiders and financial analysts caution that this figure is not grounded in factual analysis.

Official sources indicate that the government is more likely to collect around PKR 250 billion, especially considering adjustments that will be made in June related to advance tax payments.

A major factor behind the revenue shortfall is the exorbitant imposition of Adjustable Federal Excise Duty (FED) on acetate tow, a key raw material used in cigarette manufacturing.

The industry had recommended an adjustable FED rate of PKR 4,000 per kg, which was intended to increase the cost of doing business for the illicit players and was supposed to be adjusted against the final tax liability improving documentation and reconciliation.

Contrary to this recommendation, the government imposed a FED rate of PKR 44,000 per kilogramme, an eleven fold increase. This sharp rise has inadvertently made smuggling far more lucrative and has led to a dramatic increase in illicit activity. To underscore the severity of the smuggling issue, law enforcement agency officials have already seized 447 metric tons of acetate tow in 2025 alone. This quantity is roughly equivalent to seven billion cigarettes representing a massive loss of revenue and a major threat to the sustainability of legitimate businesses.

Recently, the government issued an ordinance intended to empower provincial law enforcement agencies to conduct enforcement activities against the illicit cigarette sector. However, no official notification has been issued to implement this law, effectively delaying any meaningful action on the ground.

Observers say this slow response risks allowing illegal cigarette smuggling to flourish unchecked, further eroding the government’s revenue base. The government seems to be slow peddling the issue, which is unfortunate given the significant fiscal and social implications.

As the fiscal year draws to a close, the government faces mounting pressure to address these regulatory and enforcement gaps to secure vital revenue and provide a level playing field for all players in the industry.

Copyright Business Recorder, 2025