The IMF has emphasized the need to remove barriers to the implementation of the track and trace system across the tobacco sector in order to reduce the budget deficit. During the Executive Board meeting, while reviewing Pakistan’s program objectives and policies, the IMF stated that the mini-budget, approved in February 2023, aimed to limit fiscal slippages and allocate resources for social spending. The mini-budget included an increase in the federal excise duty on cigarettes, with an estimated revenue of Rs 60 billion.
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PM Shahbaz Sharif also directed FBR to ensure Track & Trace implementation by August 1st 2023, and shops should not have illicit Cigarettes on the counter post the stated date. 9 days through august and the illicit cigarette trade still stands at 50% and manufaturing units are still to install track & trace in the their facility.
Despite the measures taken in February 2023, the IMF projected that the budget deficit for the financial year 2022-23 is likely to remain at one percent of the GDP. In addition to the revenue loss resulting from import suppression, the IMF highlighted other delays that contributed to the high budget deficit.
“Despite the measures taken in February, the budget deficit is projected to reach 1 percent of GDP in FY23. Total tax revenue is projected at 9.9 percent of GDP, compared to the 10.8 percent projection targeted at the time of the February Supplementary Finance Bill. In addition to the lower revenue resulting from import suppression, other delays have also played a role; for example, implementation gaps in track-and-trace have led to early signs of increased cigarette contraband, partially undermining the gains from recent FED increases and require the authorities to quickly correct these gaps. Expenditure cuts, notably a curtailment of federal development expenditure by ¼ percent of GDP, were implemented to contain the deficit at 1 percent of GDP” says the IMF staff report released in July 2023
Pakistan lacks political will and ignoring IMF direction will contribute in the loss of PKR250 billion. Experts say “Pakistan is not willing to regulate the illegal tobacco industry because a lot of politicians are a beneficiary to it. T&T and tax stamps will kill their sources of income” FBR officials were reached for a statement but they did not respond till the filing of this story.