Recent seizures by the Federal Board of Revenue (FBR) at the Sost border with China and the Torkham border with Afghanistan have highlighted the emergence of new smuggling routes for acetate tow, the core raw material used for making cigarettes. The imposition of a higher Federal Excise Duty (FED) has made acetate tow smuggling immensely lucrative, raising serious concerns for Pakistan’s economy.
In FY 2024/25, the government imposed an adjustable FED of Rs. 44,000/kg on acetate tow imports. While the policy was intended to improve documentation and control in the cigarette sector, lax enforcement has instead led to a sharp increase in smuggling and misdeclaration by importers seeking to evade taxes.
Trade data illustrates the problem clearly: recorded acetate tow imports dropped from 2.36 kilotons in 2023 to just 0.145 kilotons in FY 2024/25. Despite this decline, the availability of local duty-not-paid (DNP) cigarette brands has not decreased, pointing towards growing reliance on smuggled acetate tow for production.
On Monday, findings of an independent study on illicit cigarettes, conducted by Alvarez & Marsal (A&M), were shared with the media. A&M, a global professional services firm specializing in forensic analysis and business investigations, presented the report through Nick Hodsman, Global Head of Anti-Illicit Trade Policy at BAT. The study adopted a unique approach to measure Pakistan’s cigarette production capacity by tracking acetate tow.
According to the report, acetate tow imports into Pakistan in 2023 were sufficient to produce 60 to 80 billion cigarettes. Out of this volume, 39 billion cigarette sticks were produced by legitimate manufacturers, including 2 billion that were exported and not subject to tax. Nearly 41 billion sticks, however, were produced by non-duty-paid manufacturers. Federal Excise Duty (FED) and GST data from the FBR confirm collection on only 37 billion cigarette sticks, exposing a significant gap in potential government revenue.
Commenting on the findings, Hodsman said:
According to the report, acetate tow provides a clear window into Pakistan’s potential cigarette production capacity. The data shows a troubling mismatch between declared volumes and production potential.
Hodsman stressed that without targeted border enforcement and strict measures against misdeclaration, Pakistan risks widening its illicit trade gap. This would undermine government revenues, hurt legitimate businesses, and weaken the national economy.
