Pakistan Government imposes PKR 36 billion tax on cigarettes

Islamabad [Pakistan], August 23 : The Pakistan government on Monday imposed an additional PKR (Pakistani Rupees) 36 billion new tax on cigarettes and PKR 2 billion tax on tobacco processing to get an additional Rs38 billion in taxes.
Following the change, the price of cigarettes of tier-1 brands is likely to go up by PKR 20 to PKR30 while for tire-2 brands, the price may go up by PKR 10 per packet, Geo News reported.
The same impact will be visible on tobacco processing, as the government has jacked up advanced Federal Excise Duty (FED) tax from PKR10 per kg to PKR390 per kg, which will be adjustable.
This new development came just ahead of International Monetary Fund's (IMF) executive board meeting, which is scheduled to hold on August 29 in Washington. Pakistan came up with this plan to secure the revival of stalled programme and release of USD 1.17 billion tranches under the augmented USD 7 billion extended fund facility (EFF).
Meanwhile, Pakistan's President Arif Alvi signed the Tax Laws Second Amendment Ordinance 2022. The government, in a major move, has also waived fixed tax on small traders and retailers.
In order to reduce the burden of tax on retailers' shoulders, Pakistan slashed the tax collection target from PKR 42 billion to PKR27 billion by doling out incentives of PKR15 billion to traders, who are considered the major constituency of the ruling Pakistan Muslim League-N.
The government did not slap regulatory duty on luxury items as it will be imposed through SRO after getting approval from the tariff board and then the ECC might grant its assent, according to Geo News.
Through RDs, the FBR plans to generate PKR5 to PKR14 billion in tax revenue, so in totality, the revenue impact might cross PKR50-52 billion.
"We have taken additional taxation measures of PKR38 billion and provided incentives/tax relief to the tune of PKR19 billion so the net additional revenues will fetch over PKR19 billion during the current fiscal year," FBR Chairman.
Earlier, the Pakistan government increased the taxable threshold for the upper brand cigarettes from the printed price of PKR 5,960 per 1,000 sticks to PKR 6,660.
According to SPDC estimates based on IMF projections, approximately 4 of per capita income was required to purchase 2,000 cigarettes in 2020-21, which would decrease to 3.6 per cent in 2021-22 and further decrease to 3.2 per cent in 2022-23 if cigarette prices do not rise, reported Geo News.
The low-taxed cigarettes comprise the majority of the market while the average excise tax share is nearly 45 per cent of the retail price, which is significantly lower than the widely accepted benchmark of 70 per cent of the retail price.