ISLAMABAD: An international firm has revealed in its report that the imposition of a higher Federal Excise Duty (FED) of Rs44,000 per kg on the import of acetate tow resulted in smuggling and an increased share of illicit cigarettes in Pakistan.
The import of acetate tow, which is a raw material for the filter of cigarettes, has dropped significantly from 2.36 kilotons in 2023 to 0.145 kilotons in the last fiscal year 2024-25, although the consumption of cigarettes did not decline in Pakistan. It demonstrates that the consumption has been shifting towards illicit and smuggled brands. Brazil and Poland have demonstrated and reduced the share of illicit tobacco despite having porous borders. Pakistan can overcome this menace, which is causing losses to its national exchequer through effective enforcement, the Head of Anti Illicit Trade Policy at British American Tobacco (BAT), Nick Hodsman, stated on a video link while launching the report here on Monday.
The findings of the study on illicit cigarettes, conducted by Alvarez & Marsal (A&M), were shared with journalists. The A&M is a global professional services firm specialising in forensic analysis and business investigations. The report adopts an approach to measuring Pakistan’s cigarette production capacity by tracking acetate tow — the core raw material used for making cigarettes.
The report says that in 2023, acetate tow imports into Pakistan were enough to produce 60-80 billion cigarettes. From this imported acetate tow, 39 billion cigarette sticks were produced by duty and tax-paid manufacturers, including 2 billion sticks which were exported and not subject to tax. On the other hand, nearly 41 billion sticks were produced by non-duty-paid manufacturers. The Federal Excise Duty (FED) and GST data from the FBR corroborate that FED was imposed on only 37 billion cigarette sticks, which showcases a major gap in potential government revenue collection.
Hodsman, in this regard, commented, “According to the report, acetate tow provides a clear window into Pakistan’s potential cigarette production capacity. The data shows a troubling mismatch between declared volumes and production potential.”
