Smuggling of Acetate Tow Raises Concerns for Pakistan’s Economy
Recent seizures by the Federal Board of Revenue (FBR) at the Sost border (China) and Torkham border (Afghanistan) have revealed new smuggling routes for acetate tow — the key raw material used in cigarette manufacturing. The trend is raising serious concerns about revenue loss and the growth of the illicit cigarette trade.
Background on FED Policy
In FY 2024/25, the government imposed an adjustable Federal Excise Duty (FED) of Rs. 44,000 per kilogram on acetate tow imports. The aim was to improve documentation and control in the cigarette sector. However, weak enforcement has fueled smuggling and misdeclaration, making illegal trade highly profitable.
Trade Data and Market Impact
Official data shows a sharp decline in legal imports: from 2.36 kilotons in 2023 to just 0.145 kilotons in FY 2024/25. Despite this drop, the supply of non-duty-paid (DNP) cigarette brands in the market has remained steady — indicating a growing reliance on smuggled raw material.
Findings from Independent Study
A recent report by Alvarez & Marsal (A&M), shared through Nick Hodsman, Global Head of Anti-Illicit Trade Policy at BAT, analyzed acetate tow imports to estimate Pakistan’s cigarette production capacity.
Key findings include:
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Imports in 2023 were sufficient to produce 60–80 billion cigarettes.
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Legitimate manufacturers produced about 39 billion sticks, including 2 billion for export.
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Around 41 billion sticks were manufactured by non-duty-paid producers.
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FBR’s FED and GST data confirms tax collection on only 37 billion sticks, highlighting a large revenue gap.
Expert View
Commenting on the findings, Hodsman noted:
“Acetate tow provides a clear window into Pakistan’s cigarette production capacity. The data shows a troubling mismatch between declared volumes and production potential.”
He further emphasized the need for stronger border controls and action against misdeclaration to protect government revenues, legitimate businesses, and the wider economy.
