Estimating the Under-Reporting of Cigarette Production in Pakistan

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Tobacco taxation is a widely-used policy tool to reduce tobacco consumption globally. In Pakistan, however, policy makers have fallen short of tapping the full potential of cigarette taxation, and inefficiencies in the tax collection system persist. The national tax collection agency, the Federal Board of Revenue (FBR), relies on manufacturers' self-declaration of production to determine their tax liability. In the absence of an effective audit system, this mechanism contains a built-in opportunity for under-reporting production to evade taxes and thus causes inefficiencies in tax collection. In this context, the study's goal is to quantify the under-reporting of cigarette production and assess the extent of tax evasion by the cigarette manufacturing industry.