The government has issued an ordinance to impose an additional Rs36 billion tax on cigarettes, an additional Rs2 billion tax on the processing of tobacco, and lowered charges on transportation vehicles in order to raise an additional Rs38 billion in taxes.

According to Geo, tier-1 brand cigarettes may see a price increase of Rs20 to Rs30 each packet, while tier-2 brand cigarettes would see a price increase of Rs10 per packet.

The government increased the advance federal excise duty (FED) tax on tobacco processing from Rs10 per kg to Rs390 per kg, which will be adjustable.

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In order to secure the restart of a stalled programme and the release of a $1.17 billion tranche under an expanded $7 billion extended fund facility (EFF), Pakistan has moved to impose taxes on cigarettes and tobacco processing just prior to the International Monetary Fund’s (IMF) executive board meeting, which is scheduled to take place in Washington on August 29.

The government did not apply regulatory duties on luxury goods because they will be imposed through SRO after receiving tariff board approval and perhaps receiving ECC approval.

The FBR expects to raise between Rs5 and Rs14 billion in tax income through RDs, hence the overall revenue impact could reach between Rs50 and Rs52 billion.

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It appears strange that the government did not implement any taxation measures on the production of sugar-filled beverages, which also harms the health sector.

According to the ordinance, retailers who do not fall under tier-1 will be charged the tax through their monthly electricity bills at a rate of 5 per cent where the amount of the bill does not exceed Rs20,000 and at a rate of 7.5 per cent where the amount is greater. The electricity supplier will deposit the money that is thus collected directly without deducting it from his input tax.

Through this move, the government hopes to raise Rs2 billion.

In contrast, the FED on locally produced cigarettes has increased from Rs5,900/1,000 sticks to Rs6,500/1,000 sticks for tier-1 and from Rs1,850/1,000 sticks to Rs2,050/1,000 sticks for tier-2 cigarettes. The FED on un processed tobacco has increased from Rs10 per kg to Rs390 per kg.