IMF raises alarm over tax evasion in Pakistan’s cigarette sector

The International Monetary Fund (IMF) has raised concerns over widespread tax evasion in Pakistan’s cigarette industry, where the illegal and tax-evading sector now accounts for 50% of the market.

During recent negotiations with Pakistani officials, the IMF called for stricter controls on the illicit tobacco market.

Discussions also included a market study on illegal and tax-evading cigarettes, highlighting the urgency of addressing the issue, according to sources.

A key focus of the talks was Pakistan’s track and trace system, implemented by the Federal Board of Revenue (FBR) to monitor production and curb tax evasion.

The IMF praised the system, noting its success in reducing tax evasion across four key sectors: sugar, cement, fertilizer, and cigarettes.

The system has also improved transparency in tax collection within the production sector, the IMF said.

Sources indicated that the Track and Trace system has significantly reduced counterfeit production in these industries. The IMF also discussed expanding the system to six additional sectors to further combat tax evasion and increase revenue.

However, the IMF expressed dissatisfaction with the lack of progress in taxing the retail sector, where full tax collection remains a challenge. Despite trader-friendly measures, results have been insufficient, the IMF noted.

Various proposals to boost tax revenue from retailers were discussed, including a new scheme expected to be introduced in the upcoming budget.

The proposed scheme would impose a fixed tax on retailers to bring them into the tax net, sources said.

The IMF’s push for reforms comes as Pakistan seeks to strengthen its tax system and address fiscal shortfalls. The global lender’s emphasis on curbing illicit trade and improving tax compliance underscores the need for sustained efforts to tackle revenue leakage in key sectors.