Recorded Tobacco Industry: Potential Significant Drop in FBR Tax Income
Takin' a Puff on Taxes: The Struggling Tobacco Industry in Pakistan
Islamabad's Cigarette Revenue BluesLooks like the Federal Board of Revenue (FBR) in Pakistan might miss its tax collection goal from the documented cigarette industry this fiscal year, a stark contrast to the optimistic projections earlier.
Busting Myths about the Government's Tax CollectedIndustry insiders and financial analysts dismissed the claims made by certain NGOs that the government would collect a whopping PKR 285 billion from the cigarette industry for the fiscal year 2024-25. They asserted that these figures weren’t based on factual analysis but on pure speculation.
Official sources suggest 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.
The Acetate Tow SqueezeOne major reason for 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. To their dismay, the government increased it nearly 11 times, imposing a FED rate of PKR 44,000 per kilogramme.
This substantial rise has likely made smuggling even more profitable, leading to a surge in illicit activity. To drive home the severity of the smuggling issue, officials have already seized 447 metric tons of acetate tow this year alone, representing roughly 7 billion cigarettes. That's a massive loss of revenue and a significant blow to the survival of legal businesses.
Legal Action Delayed, Smuggling UnleashedTo combat the illicit cigarette sector, the government issued an ordinance intended to empower provincial law enforcement agencies to take action against the trade. However, no official notification has been issued yet to implement this law, effectively postponing any meaningful action on the ground.
Sitting on the SidelinesObservers believe that the slow response from the government risks allowing illegal cigarette smuggling to run rampant, further depleting the government's revenue base. The government's lackadaisical approach is unfortunate, given the significant fiscal and social implications.
The Final CountdownAs the fiscal year comes to a close, the government faces increasing pressure to address the regulatory and enforcement gaps to secure crucial revenue and provide a fair playing field for all players in the industry.
In BriefWhile FBR's tobacco revenue collection remains steady for 2024-25, factors such as the shift to economy brands, potential industry manipulation, and rising illicit trade pose challenges for future revenue trends.
Sources:
- Business Today Pakistan
- Pakistan Tobacco Review Report, 2022
- World Health Organization
- Dawn
- Financial analysts are conducting an analysis of the struggling tobacco industry in Pakistan, considering the risk posed by the rising illicit trade and the impact of fiscal policies, such as the Adjustable Federal Excise Duty (FED) on acetate tow, on business fluctuations.
- The Tobacco Review Report of 2022 suggests that the revenue shortfall in the documented cigarette industry of Pakistan is primarily due to the increased imposition of FED on acetate tow, which has stimulated the growth of the illicit trade and poses a significant risk to the government's revenue collection goal.
- In the finance sector, the tobacco industry in Pakistan is under intense scrutiny due to the government's ongoing struggle to collect revenue from the industry, both from legal businesses and those involved in the illicit trade, and the ongoing implications for the economics and social aspects of the industry.
