Tobacco Revenue by FBR Gallops to PKR 240 Billion in July-May (2024-25) Targeting Over PKR 285 Billion by End of Fiscal Year

Tobacco Revenue by FBR Gallops to PKR 240 Billion in July-May (2024-25) Targeting Over PKR 285 Billion by End of Fiscal Year

GETTING DOWN TO BRASS TAXES: A LOOK AT THE FBR'S TOBACCO TAX COLLECTION

The Federal Board of Revenue (FBR), Pakistan's tax collection authority, has had a rollercoaster ride when it comes to tobacco taxes. In the previous fiscal year (2023-24), the tax revenue from cigarettes skyrocketed, leaping by a whopping 66% from Rs142 billion in 2022-23 to a staggering Rs237 billion[2][5]. This astronomical growth can mainly be credited to a hike in taxes implemented before February 2023.

However, the current fiscal year hasn't been as smooth sailing, with the tobacco tax revenue growth lagging behind expectations. Compared to the same period in the previous year, there's been just a 7.4% increase[1]. This slump is primarily due to the tobacco industry's cunning tactics, such as shifting sales towards low-taxed economy brands and hoarding premium brands to avoid tax hikes[1].

Despite the FBR's struggles, there's a silver lining: the expected tobacco tax revenue for the ongoing fiscal year could break the Rs285 billion mark, aligning with the previous year's figures, signaling a stable demand despite the high taxation[1]. These figures come from the FBR's database run by Pakistan Revenue Automation Limited (PRAL).

*Illicit Trade: A Hidden Tax Enemy*

The tobacco industry often points fingers at illicit trade for their underperformance, claiming that it's national sales they're losing[4]. However, official statistics tell a different story. Production of economy brands, the tobacco industry's alleged victims, has witnessed an impressive 30% spike[1], contradicting their plight.

As for the magnitude of the illicit trade, estimates suggest it makes up around 35% of the cigarette market[4]. Although this figure pales in comparison to the industry's frequently cited 54% figure, tax evasion through illegal cigarette trade remains a persistent concern[4].

Despite the challenges, the FBR has been making strides towards rectifying the situation. Improvements in the tracking and tracing system are showing promising results—currently, 57% of cigarette packs carry tax stamps, up from 48% in 2023[4].

*Lower Taxes: A Hollow Solution?*

Pushing for lower taxes in the name of improving revenue might sound appealing, but the data tells a different story. Reducing taxes would likely bring down prices and increase accessibility, potentially leading to a surge in smoking rates without necessarily boosting revenue collection[4]. In other words, it's a gamble the FBR might want to think twice about.

In conclusion, while tobacco taxation has proven effective in curbing consumption and boosting revenue in the past[5], the current challenges include tackling illicit trade and maintaining consistent tax rates that keep pace with inflation and international recommendations[3][4].

Sources:

1. Business Recorder, 2025.
2. Dawn, 2023.
3. The Express Tribune, 2023.
4. Institute for Public Opinion Research (IPOR), 2024.
5. Social Policy and Development Centre (SPDC), 2023.
6. The tobacco industry, despite their claims, has not been significantly impacted by illicit trade, as the production of economy brands has increased by 30%.
7. Finance experts argue that lowering tobacco taxes might increase smoking rates and accessibility, but it may not necessarily result in higher revenue collection due to factors like inflation and international recommendations.

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