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The Capital Calling Unveiling the Fiscal Erosion in Pakistan’s Tax System by Cigarette Industry Giants

In a recent and deeply concerning revelation, the Islamabad-based think tank, “The Capital Calling,” has raised an urgent alarm about significant fissures in Pakistan’s tax system. These cracks have resulted in a staggering loss of Rs 567 billion, a situation exacerbated by the facilitation provided to two major players in the cigarette industry. This development is particularly alarming given Pakistan’s current economic turmoil, which is described as one of the worst crises in the nation’s history.

The think tank’s findings are supported by a recent study conducted by the Sustainable Development Policy Institute (SDPI). This study meticulously details how monumental national resources, worth billions, have been siphoned off by the influential cigarette industry giants, specifically Pakistan Tobacco Company (PTC) and Philip Morris International (PMI).

The heart of the issue lies in the period since 2017, during which these tobacco behemoths have reportedly caused a loss of Rs 567 billion. The SDPI study points out a critical failure of the Federal Board of Revenue (FBR) in Pakistan to meet its revenue collection targets from the cigarette industry. This failure comes into sharper focus considering that the tax on cigarettes was halved in 2017, following assurances from the two industry giants that painted an overly optimistic financial scenario. This resulted in the introduction of a “Third Tier” in the tax structure, a move that has evidently led to a significant hemorrhaging of revenue, amounting to Rs 567 billion over the past seven years.

A closer examination reveals that multinational cigarette companies aggressively lobbied for the introduction of a three-tier excise duty structure in 2017. Their argument hinged on increasing revenue collection while conveniently sidelining the adverse impacts on public health. However, the promise of increased revenue through the third tier not only fell flat but was also exposed as grossly misleading.

Furthermore, the study sheds light on the dynamics within the cigarette industry, highlighting its formidable influence over policymakers. This influence has led to a call for urgent, comprehensive reforms from researchers and analysts, who stress the need to counteract the sway of these powerful industry players.