The federal government has increased the Federal Excise Duty (FED) on e-liquids used in electronic cigarettes as part of its Budget 2026-27 taxation measures, targeting higher revenue collection from the growing nicotine products market.
Under the revised tax structure, the FED on e-cigarette liquids has been raised from Rs. 10,000 per kilogram to Rs. 16,500 per kilogram, representing a substantial increase in taxation on vaping products.
At the same time, the government has abolished the previously applicable retail-price-based duty structure, which imposed taxes of up to 65 percent based on product prices. Officials said the earlier system created complexities in tax administration and contributed to pricing distortions within the market.
According to budget documents, the move is part of broader fiscal reforms aimed at streamlining taxation in the tobacco and nicotine sector, which has experienced rapid expansion in recent years, particularly among urban consumers and younger age groups.
Previously, e-cigarette products were subject to a dual taxation framework that combined a fixed excise duty with an ad-valorem tax linked to retail prices. Authorities argued that the system encouraged under-invoicing and complicated tax collection procedures.
The government believes the new fixed-duty regime will simplify compliance, improve revenue collection, and create a more transparent taxation framework for alternative nicotine products.
Officials also stated that the revised structure is intended to bring taxation on vaping products closer to the treatment of conventional tobacco products under a more uniform excise regime.
The measure forms part of the government’s wider strategy to strengthen revenue generation under Budget 2026-27 while improving the efficiency of the tax system across different sectors of the economy.
