FED on cigarettes: WHO suggests upward adjustment

ISLAMABAD: The World Health Organisation (WHO) has strongly recommended upward adjustment of Federal Excise Duty (FED) on cigarettes to generate additional revenue of nearly Rs100 billion in 2026-27. According to the WHO’s policy brief on review of FED revenue collection from cigarettes in 2025-26, the FED rates have not been adjusted despite inflation of approximately 30 percent, resulting in a significant decline in real revenue. Adjusting FED rates in line with inflation over the past three budget cycles would have generated approximately Rs 100 billion in additional revenue (excluding GST). In summary, the increase in cigarette production is the primary driver of growth in FBR revenues during July–March FY2025–26. There is no evidence to support industry claims of rising illicit trade, as production of economy brands continues to increase. It is also important to note that FED rates have not been adjusted despite inflation of approximately 30 percent, resulting in a significant decline in real revenue. Adjusting FED rates in line with inflation over the past three budget cycles would have generated approximately Rs 100 billion in additional revenue (excluding GST). To safeguard both revenue and public health objectives, it is essential to reassess and strengthen tobacco tax policy, including regular inflation-based rate adjustments and tighter controls on production timing and potential manipulation of brand mix. To preserve the purchasing power of the March 2023 FED rates, FBR would have needed to increase the FED rate to Rs 6,585 per thousand sticks for the economy segment and Rs 21,514 per thousand sticks for premium cigarettes (as of March 2026). This lack of indexation is estimated to have resulted in a loss of potential revenue for FBR in real terms. Adjusting FED rates in line with inflation over the past three budget cycles would have generated approximately Rs. 100 billion in additional revenue (excluding GST). The total indirect tax collection from cigarettes (FED + GST) during July–March FY2025–26 amounted to Rs 225 billion (Figure1), which is 11 percent higher compared to the revenue in FY2024–25. FED collection increased from Rs 158 billion in FY2024–25 to Rs 174 billion in FY2025–26, while GST revenue rose from Rs 45 billion to Rs 51 billion over the same period. This increase is primarily driven by higher cigarette production, WHO added. Copyright Business Recorder, 2026

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