Karachi, May 25, 2025 – The Overseas Investors Chamber of Commerce and Industry (OICCI) has raised serious concerns over the alarming rise in illicit trade within Pakistan’s tobacco sector, urging the government to provide immediate tax relief and regulatory support to protect legitimate businesses.
In its budget proposals for FY2025-26, OICCI emphasized the urgent need for reforms to curb illegal tobacco sales and safeguard the state’s tax revenues.
OICCI’s analysis reveals that Pakistan’s total cigarette market is approximately 81 billion sticks annually, valued at over Rs. 700 billion. However, the industry is under significant strain due to the growing influence of illicit trade, which now commands 53% of the market. This includes 40% from local tax-evading manufacturers and 13% from smuggled tobacco products. The OICCI warned that this situation is costing the national exchequer over Rs. 300 billion annually in lost tax revenues.
The chamber pointed out that while multinational companies like Pakistan Tobacco Company (PTC) and Philip Morris International (PMI) hold a 46% share of the market, they contribute an overwhelming 98% of the industry’s excise and sales tax. In contrast, local manufacturers—most of whom evade taxes—hold over 40% of the market but contribute only 2% in taxes. According to OICCI, this disparity not only undermines legal tobacco operations but also encourages the proliferation of low-cost, illegal tobacco products that evade both health regulations and fiscal responsibilities.
One of the key issues highlighted by OICCI is the failure to enforce the Minimum Legal Price (MLP) for cigarettes, set at Rs. 162.25 per pack. Despite this, illicit tobacco brands are being openly sold for as little as Rs. 50 per pack. This significant price gap drives consumers toward illegal products, directly harming tax-compliant firms. OICCI emphasized that without strict enforcement of the MLP, the legal tobacco sector will continue to lose market share.
OICCI also criticized the weak implementation of the Track and Trace (T&T) system, intended to monitor tobacco production and distribution. Despite being in place, the system has been rendered ineffective due to poor enforcement, the presence of counterfeit tax stamps, and the exclusion of regions like Azad Jammu and Kashmir (AJK) from compliance.
Between May 2022 and February 2023, a 200% increase in Federal Excise Duty led to a sharp rise in prices for legal tobacco products. This policy backfired, as consumers shifted to cheaper illicit options. As a result, the illicit market’s share surged from 37% to 53%, causing a loss of 17 billion sticks from the legal to the illegal segment.
Despite these challenges, the legal tobacco industry contributed Rs. 277 billion in taxes in FY2023/24, up from Rs. 176 billion in the previous year. However, OICCI warns that the sustainability of this revenue is at serious risk. Without urgent relief and a crackdown on the illicit tobacco trade, OICCI cautions that both legitimate businesses and government revenues could face long-term harm. The chamber reiterated its call for the government to support the legal tobacco industry through effective enforcement and rational taxation.