Curbing illicit tobacco trade: a key IMF condition

It will generate more revenue, raise tax-to-GDP ratio

LAHORE:

Experts have suggested that Pakistan has a strategic opportunity to meet conditions of the International Monetary Fund (IMF), enhance tax collection and significantly increase the tax-to-GDP ratio by curbing illicit trade in the tobacco sector.

Recently, the IMF recommended that the Federal Board of Revenue (FBR) should apply a uniform excise duty to all locally manufactured cigarettes, regardless of the manufacturer’s origin, to generate additional revenue.

However, the total tax collection from the tobacco sector comes from just two legal companies, while the FBR has completely failed to bring the illicit cigarette manufacturers to the tax net.

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.

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“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 the tax collection and improving the tax-to-GDP ratio,” said Osama Siddiqui, a microeconomic analyst.

Recent industry data has highlighted a rise in the market share of illicit cigarettes to 63%, underscoring the urgency of action. The disparity caused by higher prices of legal cigarettes has driven consumers towards cheaper, untaxed alternatives, resulting in a loss of Rs310 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.”

Published in The Express Tribune, March 24^th, 2024.

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