The widespread availability of smuggled and illicit cigarettes in local markets highlights the failure of authorities responsible for curbing the illegal trade.
Despite stringent regulations, the sale of non-tax-paid cigarettes continues to rise, undermining government efforts to control tobacco consumption and generate revenue from the legal tobacco sector.
Pakistan has made significant strides in reducing cigarette consumption by implementing high taxation policies, a crucial step in its public health initiatives. According to a senior official of the Federal Board of Revenue (FBR), while revenue collection from the tobacco sector has declined, cigarette companies have also reported a substantial drop in sales. This indicates that increased taxation has effectively discouraged smoking.
However, the decline in legal cigarette production has been accompanied by a surge in smuggled and counterfeit cigarettes. Reports suggest that the legal tobacco sector currently contributes nearly 98% of the taxes collected from the industry, while the illicit sector contributes a mere 2%. Since the last tax increase in 2023, the share of illegal cigarettes in the market has exceeded 50%.
The growing availability of smuggled cigarettes not only damages legitimate businesses but also results in significant revenue losses for the government. It is estimated that due to tax evasion in the tobacco sector, Pakistan loses over Rs 300 billion annually. Many smokers, faced with higher prices, shift to cheaper illicit cigarettes, which are often sold without health warnings and do not comply with safety regulations.
Despite these challenges, reducing cigarette taxes should not be an option. The government must take firm action against the illegal cigarette trade rather than considering tax reductions. A comprehensive strategy, including stronger enforcement measures and stricter border controls, is needed to curb cigarette smuggling and protect tax revenues.
A recent report in national media revealed that the FBR had sought approval from the International Monetary Fund (IMF) to lower cigarette taxes for the remaining fiscal year. However, the IMF rejected the proposal, reinforcing Pakistan’s commitment to maintaining high cigarette taxes as part of its public health and revenue-generation strategy.
The government now faces a dual challenge—ensuring that cigarette taxes remain a deterrent while simultaneously cracking down on the illicit market to prevent further economic losses.