Pakistan is unlikely to achieve its tax collection targets due to the rapid growth of illicit cigarette sales, reports Geo News, citing Philip Morris Pakistan Chief Financial Officer Muhammad Zeeshan.
In February, the government increased the Federal Excise Duty on cigarettes in an attempt to boost revenues in line with the conditions for financial support from the International Monetary Fund.
Following the tax hike, the duty on locally produced cigarettes retailing for more than PKR9,000 ($32.02) per 1,000 sticks is PKR16,500 while the duty on locally produced cigarettes retailing for less than PKR9,000 per 1,000 sticks is PKR5,050. The government aims to fetch an additional PKR11 billion ($39.13 million) in revenue with the measure.
The excise duty increase has doubled the price difference between legal and illegal cigarettes. As a result, illicit cigarette sales have skyrocketed. In the first quarter of 2023, the sale of legal cigarettes has declined by 50 percent. Pakistan now has the second-largest illicit cigarette market in Southeast Asia after Malaysia.
Due to the declining legal sales, analysts expect the government to collect only PKR170 billion from the tobacco industry—well short of its collection target of PRK260 billion.