FBR tobacco revenue hits Rs240bn, set to exceed Rs 285bn

RECORDER REPORT

ISLAMABAD: The Federal Board of Revenue (FBR) has so far collected Rs 240 billion from tobacco industry during July-May (2024-25) which is expected to exceed Rs 285 billion by the end of June 2025, negating industry’s claims of falling government revenue.

The growing numbers of tax collection from tobacco sector during 2024-25 counter their budget proposals seeking decline in tobacco taxes. This also reflects that the tobacco industry manipulates tax numbers to influence policy. The current expected tobacco tax revenue of more than Rs 285 billion in the ongoing fiscal year would align with the previous fiscal year’s numbers, indicating stable demand despite high taxation.

The figures have also been confirmed by the FBR’s database of Pakistan Revenue Automation Limited (PRAL).

Despite massive shortfall in tax collection of the FBR during July-May (2024-25), the collection from the tobacco industry during July-May (2024-25) is showing an upwards trend with anticipated collection of Rs 285 billion by the end of current fiscal year contrary to the proposal by one of tobacco MNC’s seen by Business Recorder.

According to official sources, the tobacco industry in Pakistan is once again under scrutiny for allegedly distorting facts to influence government policy and IMF negotiations ahead of the 2025–26 federal budget. Industry players are pushing for a reduction in the Federal Excise Duty (FED) on cigarettes—from Rs 5,050 to Rs 3,800 per 1,000 sticks—arguing that it would increase consumption and, in turn, improve tax collection.

However, available data contradicts these claims. As of May 15, 2025, tobacco-related tax revenue had already reached Rs 240 billion, with estimates suggesting that the figure will exceed Rs 285 billion by the end of June. This would align with the previous fiscal year’s numbers, indicating stable demand despite high taxation.

The industry’s narrative is further complicated by its repeated exaggeration of the scale of illicit trade. A recent survey by the Institute for Public Opinion Research (IPOR) claimed that 54% of cigarette brands sold were illicit, based on non-compliance with tax stamps and graphic warnings. However, the findings did not account for the actual market share or consumption of these brands, rendering the estimate misleading.

A separate study by the Social Policy and Development Centre (SPDC) revealed that the top 15 brands—13 of which are registered with the FBR—make up 80% of the market. Illicit trade, including both locally manufactured and smuggled cigarettes, accounts for approximately 33.2% of total consumption—significantly lower than the industry’s often-cited 50%+ figure.

The top illicit brands with the higher market share are currently selling in the range of Rs 180 to Rs 240 per pack. Hence a reduction in tobacco taxes will not drive the volumes back to tax-paid products and the only way to reduce illicit is through extensive enforcement and proper track and trace implementation. This has also been reiterated by a leading donor agency that the Laffer curve principle does not impress them rather the focus of the FBR should not be to continue convincing the IMF to reduce tobacco taxes rather should be towards enforcement.

Despite efforts to frame lower taxation as a solution to improve revenue, the data suggests otherwise. Reducing taxes would likely lower prices and increase accessibility, potentially leading to higher smoking rates without necessarily improving revenue collection, they added.