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Govt announces new tax on cigarettes

In order to raise an additional Rs38 billion in taxes, the government has issued an ordinance that imposes an additional Rs36 billion tax on cigarettes, an additional Rs2 billion tax on tobacco processing, and lowers the fees for transportation vehicles.

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

The government raised the adjustable advance federal excise duty (FED) tax on processed tobacco from Rs. 10 per kg to Rs. 390 per kg.

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

Because the tariff board and possibly the ECC must approve them before they can be implemented through SRO, the government did not apply regulatory duties on luxury goods.

The total revenue impact could be between Rs50 and Rs52 billion because the FBR anticipates that RDs will generate between Rs5 and Rs14 billion in tax revenue.

It seems strange that the government did not enact any taxation measures on the manufacture of beverages with added sugar, which also has a negative impact on the health sector.

The ordinance states that retailers who do not fall under tier-1 will be charged the tax through their monthly electricity bills at a rate of 5% where the bill amount does not exceed Rs20,000 and at a rate of 7.5% where the amount is greater. Without deducting it from his input tax, the electricity provider will deposit the money that was thusly collected.

The government intends to raise Rs 2 billion through this action.

For tier-1 cigarettes, the FED increased from Rs5,900/1,000 sticks to Rs6,500/1,000 sticks, and for tier-2 cigarettes, it increased from Rs1,850/1,000 sticks to Rs2,050/1,000 sticks. Tobacco that has not been processed now carries a FED of Rs390 per kg, up from Rs10 per kg.

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