The Pakistan cigarette FED three-tier tax proposal 2026 is reportedly under consideration by the federal government as authorities review major changes to the excise duty structure in the upcoming Finance Bill 2026.
The proposed move aims to address rising illicit cigarette sales and reduce pressure on the formal tobacco industry, which officials believe is being affected by tax distortions and weak enforcement.
Under the Pakistan cigarette FED three-tier tax proposal 2026, the current two-tier Federal Excise Duty system on cigarettes is expected to be revised into a three-level structure.
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Reports suggest the government is considering introducing a new third slab with an estimated duty of around Rs. 3,200 per 1,000 cigarette sticks. This would sit between existing tax categories for premium and low-priced brands.
At present, cigarettes are taxed at Rs. 16,500 per 1,000 sticks for high-end brands and Rs. 5,050 per 1,000 sticks for lower-tier products.
Rising Illicit Market Pressure Behind Proposed Tax Changes
The Pakistan cigarette FED three-tier tax proposal 2026 is being discussed amid concerns that illicit cigarettes now make up nearly 56 percent of the total market.
Officials and stakeholders believe that high taxation combined with weak enforcement has contributed to the rapid growth of the informal sector. This has reportedly reduced tax compliance and impacted legal manufacturers.
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Industry observers also note that sharp increases in Federal Excise Duty over recent years—reportedly up to 200 percent—have made legal products less competitive against untaxed or smuggled alternatives.
Stakeholders argue that the Pakistan cigarette FED three-tier tax proposal 2026 could help stabilize the formal cigarette market by creating a more balanced tax structure.
The formal sector has reportedly faced declining sales due to rising prices and competition from illicit brands. Policymakers are now weighing whether a revised tax framework could improve compliance and boost government revenue.
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However, no final decision has been announced yet, and the proposal remains under review ahead of the Finance Bill 2026.
