The undocumented procurement of acetate tow, a critical raw material used in cigarette manufacturing, has surged since the imposition of an adjustable Federal Excise Duty (FED) of PKR 44,000 per kilogram on acetate tow imports in FY 2024–25.
Recent trade data revealed that acetate tow imports dropped by 53%, declining from 6,892,637 kg in 2023 to 3,673,671 kg in 2025. This significant decline of 3,218,966 kg in documented imports, at a time when cigarette production has remained stable at 60–80 billion sticks per year, strongly indicated a substantial increase in undocumented or smuggled supplies. As a result, the national exchequer has been deprived of approximately Rs 300 billion in adjustable tax revenue.
“The contraction in documented imports signals a clear shift towards undocumented channels and demands a targeted audit and enforcement response from the relevant authorities,” said an industry expert.
It is worth noting here that as per independent study on illicit cigarettes conducted by Alvarez & Marsal (A&M), a leading global professional services firm specialising in forensic analysis and business investigations, acetate tow imports into Pakistan in 2023 were sufficient to produce between 60 and 80 billion cigarettes. Of this total, documented cigarette production by legitimate manufacturers stood at 39 billion sticks, while nearly 41 billion sticks were produced by non-duty-paid, illicit manufacturers.
The expert added that in FY 2024–25, key raw materials, including cigarette paper, filter paper and acetate tow, were being imported through multiple traders and intermediaries, a practice that obscured traceability and enabled the systematic underreporting of actual production volumes.
Government regulations explicitly restrict the import of cigarette paper and filter paper to registered cigarette or filter manufacturers. Despite this, independent traders have been found procuring these materials, openly flouting the regulatory framework. Compounding the concern, several cigarette manufacturers have reported imports of cigarette paper and filter paper while declaring zero imports of acetate tow, a glaring inconsistency that strongly suggests this critical input is being sourced through undocumented or illegal channels.
“This trend has created a deeply uneven playing field for the formal industry, where compliance with documented imports, declared production, and tax obligations has become increasingly difficult to sustain,” the expert said.
He added that widespread tax evasion, coupled with the sale of cigarettes below the government’s minimum retail price, has already pushed the legal industry’s market share below 50%, significantly undermining tax collection and contributing to revenue losses exceeding Rs 300 billion.
The expert urged authorities to strengthen enforcement through rigorous analysis of trade and import data, emphasising the urgent need for stricter audits and tighter monitoring mechanisms to curb revenue leakage and bring the sector fully into the documented economy.
