KARACHI: The recent increase in the Federal Excise Duty (FED) on the tobacco sector will lead to reduction in the government’s revenue and surge in the share of illicit cigarettes in the domestic market.

As per industry sources, there is a fear of a 50 percent reduction in the sale of legal cigarettes as the sudden increase in Federal Excise Duty (FED) will raise the price of legal cigarettes by 100 percent. The recent increase in FED will only benefit illegal cigarette brands who are also increasing their margins and market penetration.

They are expecting that with recent hike in FED will cause legal cigarette sales in Pakistan to lose market share, going from 60 percent to less than 50 percent, and cheap illegal cigarettes will fill the void, discouraging investment in the legal industry.

Industry sources said that the government had set a target of collecting taxes of Rs 200 billion from the cigarette industry in this fiscal year (FY23), however the unusual increase in the FED will not only dent the government collection targets but also have a detrimental effect on the legal cigarette industry to force them to shut down their business.

“Despite the proliferation of illegal cigarettes in the country the extraordinary increase in FED has raised new questions about the government’s revenue targets to raise Rs 170 billion in additional revenue,” they said.

Cigarettes are the sector in Pakistan where the rate of tax evasion is already very high and now the extraordinary increase in federal excise duty will further increase this trend, they added.

Copyright Business Recorder, 2023