The IMF advises uniform Federal Excise Duty cigarette rates, regardless of origin, and recommends a Petroleum Development Levy for environmentally harmful machinery. It urges higher excises on local cars and yachts and stronger border control for oil smuggling. The IMF suggests taxing e-cigarettes like tobacco due to similar risks.
The IMF’s report to Pakistan suggests reducing excise duties on items lacking negative externalities, significant revenue potential, inelastic demand, or luxury status in the medium term. Excises currently apply to goods like tobacco and cars, contributing 0.4% to GDP, while the Petroleum Development Levy added 0.7% in FY2023.
Petroleum products, exempt from Sales Tax since March 2022, saw a substantial Petroleum Development Levy increase in FY23. Despite this, overall taxation on petroleum has dropped since 2019. The IMF notes that Pakistan’s petrol prices are lower than many other countries.
Removing the Sales Tax exemption for petroleum could raise prices by 18%, aligning Pakistan with neighbouring countries’ prices. Tobacco excise rates rose significantly in February 2023, leading to a 20-25% drop in cigarette consumption.
