Cigarette FED collection dips despite tax surge as smuggling grows

ISLAMABAD: The Federal Board of Revenue (FBR) has reported a surprising drop in cigarette-related Federal Excise Duty (FED) collection for the fiscal year 2024-25, despite a steep 200 percent increase in taxes on tobacco products.

According to the FBR’s report released on Thursday, Rs225.495 billion was collected from cigarettes in 2024-25, compared with Rs235.047 billion in 2023-24. This represents a decline of 4.1 percent and highlights the growing impact of illicit cigarette trade on the country’s tax revenues. The share of cigarettes in the total FED collection also fell sharply from 40.7 percent to 29.4 percent during this period.

Overall FED revenue sees strong growth

In contrast to the dip in cigarette contributions, the overall collection from Federal Excise Duty showed robust growth, rising by 32.8 percent from Rs577.4 billion last year to Rs766.6 billion in the current financial year. The FED’s share in the FBR’s total tax revenue inched up to 6.5 percent from 6.2 percent, underlining the role of excise taxes in boosting government finances.

Significant contributors to the FED revenues included sectors such as cement, air travel, beverages and food concentrates, aerated waters, and motor vehicles. The FBR reported achieving 101 percent of its annual FED target, signalling strong compliance in several sectors despite the challenges in cigarette taxation.

Sector-wise breakdown

Cigarettes remained the single largest contributor, accounting for 29.4 percent of FED revenue. Cement followed with 20.1 percent, while air travel contributed 6.9 percent. Overall, the top fifteen sectors together made up 83.7 percent of the total FED collection, showing a concentrated pattern of revenue generation.

The data points to a clear challenge for authorities: while the FED as a whole is performing well, controlling illicit cigarette trade remains critical to safeguard expected tax revenue.