Pakistan: Curbing illicit tobacco trade a key condition for funding by IMF

LAHORE: Experts said Pakistan has a strategic window to meet International Monetary Fund (IMF) conditions, boost tax collection, and notably increase the tax-to-GDP ratio by curbing illicit trade in the tobacco sector, The Express Tribune reported.

The IMF recently proposed that the Federal Board of Revenue (FBR) impose a uniform excise duty on all locally manufactured cigarettes, irrespective of the manufacturer's origin, to generate additional revenue.

However, tax revenue from the tobacco sector predominantly originates from just two legal companies, as the FBR has completely failed to bring the illicit cigarette manufacturers into the tax net, as per The Express Tribune

With the potential to enhance annual revenue from the tobacco industry to Rs600 billion, up from the current Rs250 billion, cracking down on the illicit tobacco trade is seen as a crucial step. This move aligns with the government's ambition to elevate the tax-to-GDP ratio to 20% and address Pakistan's economic challenges more effectively.

"Curbing the illicit tobacco trade is not just about revenue; it is also about meeting IMF conditions and strengthening Pakistan's economic resilience. This initiative can significantly contribute to enhancing tax collection and improving the tax-to-GDP ratio," said Osama Siddiqui, a microeconomic analyst.

According to The Express Tribune, recent industry data reveals a surge in the market share of illicit cigarettes, now standing at 63 per cent, emphasising the pressing need for intervention. The widening gap, attributed to the higher prices of legal cigarettes, has propelled consumers towards more affordable, untaxed alternatives, leading to a staggering loss of Pakistani currency (PKR) 310 billion in tax revenue.

He added that addressing the illicit tobacco trade was not just a fiscal necessity but also a strategic move to fund infrastructure development, healthcare and education.

By taking decisive steps to combat this issue, Pakistan can pave the way for economic growth, meet international obligations and secure vital resources for national development."