Rs415 billion in losses raise alarms over tobacco enforcement
While regulators tighten the noose around Pakistan's formal tobacco sector, the real threat is expanding in plain sight. Illicit cigarette brands—untaxed, unregulated, and widely available—have captured more than half the market.
They pay nothing, follow no rules, and yet continue to grow. The law is chasing what is visible, not what is dangerous.
The formal industry, despite contributing nearly Rs270 billion in taxes each year, now controls only 46 percent of the market. The remaining share belongs to illegal operators selling cigarettes at a fraction of legal prices.
This thriving black market is causing an annual loss of over Rs415 billion revenue that could have supported healthcare, education, or debt relief.
Instead, it is being lost to unchecked trade networks and lack of enforcement. Much of the blame lies with those who claimed to champion public health.
Campaign for Tobacco-Free Kids and Vital Strategies ran campaigns targeting the regulated industry while staying silent on the illicit trade that now dominates the market.
Last year, the government shut down both INGOs for operating without registration, funding local entities without approvals, and engaging in policy circles unlawfully. Their work, once seen as advocacy, is now under scrutiny for policy interference and regulatory evasion.
'This is not about tobacco anymore,' said Fawad Khan, spokesperson for Mustehkam Pakistan. 'It is about survival. When lawbreakers take over the market and face no consequences, the whole system starts to collapse. We are rewarding the illegal and punishing the legal—and everyone in the country is paying for it.'
At the same time, the IMF continues to push Pakistan to broaden its tax base and reduce leakages. But fiscal targets cannot be met if entire sectors remain outside the net. Experts argue that unless enforcement expands to include illegal trade, even the most disciplined revenue policies will fall short. The issue is no longer about raising taxes—it is about applying them fairly.
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Express Tribune
10-06-2025
- Express Tribune
Govt slaps Rs415b taxes to raise Rs2.2tr
Listen to article The government on Tuesday proposed over Rs415 billion worth of new tax measures to extract an additional Rs2.2 trillion from the sluggish economy by taxing digital earnings, online services, solar panels, and cars used by the middle class. It also proposed drastic reductions in import taxes to open the economy to foreign competition. The Finance Bill 2025-26, kept secret from the media by cancelling the press briefing, shows the government favouring a 19th-century-style economy by giving some relief on property purchases while taxing 21st-century digital platforms. The bill also proposes banning economic transactions of ineligible persons, including the purchase of property, cars, and investments in securities where assets don't match the purchase. Despite promoting green energy, the government has imposed an 18% sales tax on imported solar panels, raised sales tax on 850cc cars from 12.5% to 18%, and introduced a Rs2.5 per litre carbon levy. A new levy has also been imposed on conventional cars to subsidise electric vehicles. Through the finance bill, the government also amended various non-tax laws and introduced two new ones: the Digital Presence Proceeds Act, 2025, and the New Energy Vehicles Adoption Levy Act, 2025. A senior tax official said the government proposed over Rs415 billion in tax measures: Rs292 billion from Federal Board of Revenue (FBR)-related steps, Rs111 billion by imposing a Rs2.5 per litre carbon levy on petrol, diesel, and furnace oil, and Rs9 billion from the levy on conventional cars. These are part of the plan to collect Rs2.2 trillion in additional taxes to hit the Rs14.13 trillion revenue target for FY26. The petroleum and carbon levy target is set at Rs1.47 trillion. Going after the youth In a highly unusual move, the government aims to collect Rs64 billion by taxing digital and online platforms and courier services. The move appears to protect non-taxpaying retail businesses. Digitally delivered services are defined as those delivered via the internet or electronic networks with minimal or no human input. These include music, video and audio streaming, cloud services, software, telemedicine, e-learning, online banking, architectural design, research and consultancy, digital accounting, and other online facilities. E-commerce is defined as buying or selling goods and services over computer networks via websites, apps, or platforms that allow digital ordering, including via phones, tablets, or automated systems. A new law introduces a Digital Presence Proceeds Tax. It applies to all foreign vendors with a significant digital presence in Pakistan and will charge a 5% tax on proceeds from digitally ordered goods and services, whether delivered digitally or physically. These vendors must provide client-wise information for any local or foreign vendors whose advertisements are relayed in Pakistan. Banks must deduct a 5% tax. For local platforms, a 1% tax will be charged if the supply amount is up to Rs10,000, 2% if up to Rs25,000, and 0.25% if above Rs25,000. Cash on delivery by courier services is now taxed: 0.25% on electronics, 2% on clothing, and 1% on other goods. Online marketplaces allowing unregistered vendors to sell will be fined Rs1 million if those vendors are not registered under the Sales Tax Act or Income Tax Ordinance. Banks, payment gateways, or couriers failing to deduct or pay the tax under Section 160 will be fined 100% of the tax involved. The debt servicing surcharge, currently capped at 10% of electricity costs, will be relaxed to help retire Rs1.3 trillion in circular debt. Income tax There was confusion over the withholding tax on cash withdrawals. The finance minister announced a rise from 0.6% to 1%, but Deputy PM Ishaq Dar later set it at 0.8%. Withholding tax on service provision (excluding IT services) rises from 4% to 6%. Non-specified services are taxed at 15%, and sportsmen now pay 15%, up from 10%. Tax on profit on debt will rise from 15% to 20%. Dividend tax goes up to 25%, and 15% on mutual fund dividends. For the first time, a 5% tax will apply to pensioners with annual pensions of Rs10 million or more. Some relief is given to lower and upper-middle-income salaried groups. The tax rate for incomes up to Rs1.2 million is cut from 5% to 2.5%. It was originally proposed at 1%, but the rate was raised due to a 10% salary increase for government employees. For annual incomes up to Rs2.2 million, the rate drops from 15% to 11%. For Rs3.2 million earners, the rate is reduced from 25% to 23%. There's no relief for those earning over Rs4.1 million. However, the top slab surcharge has been reduced from 10% to 9% to curb "brain drain". Super tax for individuals earning Rs200-500 million is reduced by 0.5 percentage points. Tax exemption on electricity bills in former FATA areas continues for another year. A flat 4% fair market value tax applies on rental income from commercial properties. Buyers from unregistered vendors will be penalised: 10% of purchase-related expenses will be disallowed. If payment is received in cash for a single invoice exceeding Rs200,000, 50% of purchase-related expenses will be disallowed. All entities in a group must derive income under the Normal Tax Regime to claim group relief. The income tax exemption for Special Economic Zones (SEZs) and Special Technology Zones (STZs) developers and entities is limited to 2035 or ten years from the start of exemption, whichever is earlier. Real estate Advance tax on property sale or transfer is raised: from 3% to 4.5% for properties worth Rs50 million, from 3% to 5% for Rs100 million, and from 4% to 5.5% for properties over Rs100 million. Purchase tax rates are reduced: from 3% to 1.5%, from 3.5% to 2%, and from 4% to 2.5%, depending on property value. Economic transactions by ineligible persons are banned if the purchase exceeds 130% of their declared total assets. Custom duty The government proposes new tariff slabs of 5%, 10%, and 15%, replacing the existing 3%, 11%, and 16% slabs. The zero-duty slab expands from 2,201 to 3,117 tariff lines. Duty is proposed on 479 tariff lines that were previously exempt. Additional customs duties of 2% on slabs of 0%, 5%, and 10% (covering 4,383 lines) are abolished. Additional duties on 518 lines under the 15% slab are cut from 4% to 2%. Duties on 2,166 lines under the 20% slab drop from 6% to 4%. On 468 lines under slabs above 20%, the rate is cut from 7% to 6%. Regulatory duties are removed on some goods, and reduced for 595 PCT codes. The maximum regulatory duty rate falls from 90% to 50%. Sales tax An 18% sales tax based on market price has been imposed on imported pet food (including food for dogs and cats) in retail packaging, as well as on imported coffee, chocolates, and cereal bars in retail packaging. The government has introduced a 10% sales tax on the supply and import of plant and machinery by industrial units located in the erstwhile FATA/PATA regions. An 18% sales tax has been imposed on the import and supply of solar panels, whether or not assembled in modules or made up into panels. These were previously exempt from sales tax. The government has increased the sales tax on small cars from 12.5% to 18%. The current reduced rate of 10% on local supplies of vermicelli and sheer malls has also been raised to 18%. The government has doubled the sales tax rate to 2% on sales made through e-commerce and online marketplaces. The tax will be collected by banks, financial institutions, exchange companies, and payment gateways for digital payments, while couriers will handle tax collection for cash-on-delivery transactions.
Business Recorder
05-06-2025
- Business Recorder
Rs415 billion in losses raise alarms over tobacco enforcement
While regulators tighten the noose around Pakistan's formal tobacco sector, the real threat is expanding in plain sight. Illicit cigarette brands—untaxed, unregulated, and widely available—have captured more than half the market. They pay nothing, follow no rules, and yet continue to grow. The law is chasing what is visible, not what is dangerous. The formal industry, despite contributing nearly Rs270 billion in taxes each year, now controls only 46 percent of the market. The remaining share belongs to illegal operators selling cigarettes at a fraction of legal prices. This thriving black market is causing an annual loss of over Rs415 billion revenue that could have supported healthcare, education, or debt relief. Instead, it is being lost to unchecked trade networks and lack of enforcement. Much of the blame lies with those who claimed to champion public health. Campaign for Tobacco-Free Kids and Vital Strategies ran campaigns targeting the regulated industry while staying silent on the illicit trade that now dominates the market. Last year, the government shut down both INGOs for operating without registration, funding local entities without approvals, and engaging in policy circles unlawfully. Their work, once seen as advocacy, is now under scrutiny for policy interference and regulatory evasion. 'This is not about tobacco anymore,' said Fawad Khan, spokesperson for Mustehkam Pakistan. 'It is about survival. When lawbreakers take over the market and face no consequences, the whole system starts to collapse. We are rewarding the illegal and punishing the legal—and everyone in the country is paying for it.' At the same time, the IMF continues to push Pakistan to broaden its tax base and reduce leakages. But fiscal targets cannot be met if entire sectors remain outside the net. Experts argue that unless enforcement expands to include illegal trade, even the most disciplined revenue policies will fall short. The issue is no longer about raising taxes—it is about applying them fairly.
Business Recorder
02-06-2025
- Business Recorder
Budget 2025-26: Rs1trn planned for PSDP, says Ahsan Iqbal
Planning minister Ahsan Iqbal said on Monday the government would propose Rs1 trillion for Public Sector Development Programmes (PSDP) in the upcoming federal budget for the financial year 2025-26. The development came as the Annual Plan Coordination Committee (APCC) met in Islamabad under the chairmanship of Ahsan Iqbal to review the progress of the PSDP 2024–25 and finalise recommendations for the upcoming PSDP 2025–26, said a statement from the Planning ministry. The meeting brought together high-level federal and provincial representatives, including secretaries, principal accounting officers, and planning officials from Gilgit-Baltistan and Azad Jammu & Kashmir. Due to fiscal discipline agreed with International Monetary Fund, the government is constrained to not increase PSDP While addressing the participants, Planning minister emphasised that despite limited fiscal space and competing demands, the government 'remains fully committed to sustaining development momentum through strategic realignment of resources and policy reforms'. 'The Finance Division, after consultations with the IMF, has firmed up an Indicative Budget Ceiling of Rs1 trillion for the federal PSDP, including Rs270 billion in foreign aid,' Ahsan said. He noted that when the current government assumed office in early 2024, it inherited an economic landscape marked by 'constrained revenues, pressing foreign obligations, and structural imbalances'. Budget 26: govt looking to boost export of 'made in Pakistan' mobile phones, say assemblers During the meeting, a review of PSDP 2024–25 was presented. It was noted that the National Economic Council had approved a National Development Outlay of Rs3.79 trillion, which included Rs1.40 trillion for the federal PSDP, Rs2.09 trillion for provincial annual development programes, and Rs196.9 billion for state-owned enterprises (SOEs). 'However, due to financial constraints, the federal PSDP was later reduced to Rs1.100 trillion.' As of May 31, 2025, Rs1.036 trillion had been authorised for release, and Rs596 billion had been utilised. A total of 1,071 projects were included in the PSDP, with an approved cost of Rs13.427 trillion, of which Rs3.216 trillion had already been spent by June 2024. 'A throw-forward liability of Rs10.216 trillion remains, underscoring the urgent need for project rationalisation and financial discipline.' The minister highlighted that there was a dire need to increase the development budget of the country, which had direct bearing on growth and job creation. 'However, due to fiscal discipline agreed with International Monetary Fund (IMF), the government is constrained to not increase PSDP. The only way to increase development spending is to increase the revenues by increasing tax/GDP ratio from 10% to 16-18%,' he said. 'By being lowest tax paying economy we can't aspire to grow'. The minister informed that the government had undertaken reforms to overhaul tax administration. 'To ensure maximum value for the investment in development sector, the ministry has taken multiple reviews of project performance, including quarterly and mid-year reviews for better investment efficiency.' Over 118 slow-moving or redundant projects, mostly approved at the Departmental Development Working Party (DDWP) level, were recommended for capping or closure, potentially 'saving Rs1.000 trillion and freeing resources for high-impact initiatives'. Moreover, the Planning Commission facilitated re-appropriations of Rs84 billion to fast-moving projects and critical interventions, while Rs80 billion were reallocated through TSGs for emergent national priorities such as the solarization of tube wells in Balochistan. Looking ahead to FY 2025–26, the minister announced that the proposed PSDP had been restructured in line with core principles of sustainability', impact, and equity'. 'The Finance Division, after consultations with the IMF, has firmed up an Indicative Budget Ceiling of Rs1.000 trillion for the federal PSDP, including Rs270 billion in foreign aid.' The PSDP 2025–26 portfolios have been developed following extensive consultations with ministries and provinces through Priority Committee meetings and high-level reviews chaired by the deputy prime minister and advisor to the prime minister. 'The final recommendations reflect a strict prioritisation of ongoing high-impact, foreign-aided, and near-completion projects. In total, 1,120 projects have been included in the proposed PSDP, of which a significant number are designed to be completed within the next 3–4 years if fiscal space is maintained.' Pakistan faces serious challenge of water security therefore Diamer Bhasha Dam is given top priority, according to the statement. 'Hyderabad-Sukkur Motorway will be started during 2025-26. Balochistan will get highest share in development funds of nearly Rs250 billion.' The minister further informed that sectoral allocations had been finalised with Rs644 billion allocated to infrastructure, including Rs332 billion for transport and communications and Rs144 billion for energy. FBR may impose 18% sales tax on locally-manufactured cars A total of Rs150 billion has been proposed for the social sector, including Rs63 billion for education and higher education and Rs22 billion for health. Special areas like AJK and GB will receive Rs63 billion, while Rs70 billion has been allocated for merged districts of Khyber Pakhtunkhwa. Science and IT sectors have been allocated Rs53 billion, while Rs9 billion has been proposed for governance, according to the statement. Moreover, production sectors, including food, agriculture, and industries, are expected to receive Rs11 billion. In addition, SOEs have submitted development plans amounting to Rs288 billion, with major contributions from entities like WAPDA, NTDC, OGDCL, and others. The minister informed the participants that one of the 'most serious challenges' had been the increasing tension and security risks following the events of May 7, 2025, when hostilities broke out along the eastern border with India. 'This conflict has led to increased defense spending requirements and exerted additional pressure on the already limited development budget.' He acknowledged the dilemma faced by the government: choosing between critical national defense and the developmental needs of the people. However, he reassured participants that the government remained committed to maintaining a careful balance. The minister stated that the strength of a nation 'lies not just in its defense capabilities, but also in the health, education, and economic empowerment of its citizens'. 'The government will not allow Pakistan's development journey to be derailed. Instead, it will adopt innovative planning, smart budgeting, and rigorous monitoring to ensure that the needs of both defense and development are addressed.' The APCC also deliberated on critical policy reforms. It endorsed the proposal to stop at-source deduction of Cash Development Loans (CDL) from the PSDP funds, saying the practice hampered project cash flows and delayed implementation. 'The committee reiterated the policy that provincial nature projects should be funded by provinces, except in cases involving strategic national interest or implementation in deprived regions. 'Furthermore, the APCC recommended imposing a moratorium on DDWP-level project approvals during the tenure of the IMF programme, except in exceptional cases with full justification and review by the CDWP. It was also proposed that no development funds be diverted to recurring expenditures during the fiscal year.' 'We are not just managing a budget—we are shaping the future. The world may see limitations, but we see opportunities,' Ahsan said.
