ISLAMABAD: The government has decided to take a bold step in budget to control the growing share of 56 percent of illicit cigarettes in the local market by introducing a third slab (tier) of Federal Excise Duty (FED) on cigarettes through Finance Bill, 2026.
According to sources, Finance Bill, 2026 will amend the Federal Excise Act to incorporate a third tier in the existing FED structure of cigarettes, taking the total tier number to three. The existing two-tier structure would be converted into a three-tier system under the proposed Finance Bill 2026 to provide some relief to the documented tobacco sector.
The foreign donor agencies have also raised concerns over the excessive rate of the FED on cigarettes as well as increased share of 56 percent of illicit cigarettes in the local market. They have also noted with concern that the increasing share of the illicit trade has caused serious damage to the legitimate cigarette industry in Pakistan. The increase of 200 percent FED on cigarettes has created serious problems for the organised sector in Pakistan.
In this regard, the government may introduce 3rd tier structure of federal excise duty on cigarettes. The rate of FED on the 3rd tier may be within the range of Rs3200 per 1000 cigarette sticks.
Under the existing structure, in the case of locally produced cigarettes, if their on-pack printed retail price exceeds Rs12,500 per thousand cigarettes, the rate of duty is Rs16,500 per thousand cigarettes.
In the case of locally produced cigarettes, if their on-pack printed retail price does not exceed Rs12,500 per thousand cigarettes, the rate of duty is Rs5,050 per thousand cigarettes.
Copyright Business Recorder, 2026
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