The Pakistani government’s attempts to reduce cigarette consumption by increasing the tobacco tax rate have been unsuccessful, as the prevalence of cheaper non-duty-paid (NDP) cigarettes in the market has led to continued consumption of illegal cigarettes.
As a result, an estimated 32.6 billion illegal cigarettes are consumed out of a total consumption rate of 80 billion, making it challenging for the government to control the overall consumption rate.
Recent regional data indicates that Pakistan has one of the least affordable cigarette markets among South Asian and WHO Eastern Mediterranean Region (EMR) countries, and its affordability has worsened significantly over the past three years. This has resulted in down trading, but the number of cigarette consumers continues to rise.
In 2023, Pakistan ranks fourth in terms of the least affordable cigarette market among the 15 WHO EMR countries, and third among the six South Asian countries. Moreover, cigarette affordability in Pakistan has worsened the second most among the 15 WHO EMR countries and the most among the six South Asian countries during the period 2020-23.
These statistics challenge the claim made by anti-tobacco organizations that increasing taxes on cigarettes would make smoking less affordable and reduce consumption.
Moreover, increasing the tax rate on tobacco may worsen the affordability of cigarettes and lead to unintended consequences such as an increase in illicit trade. Current statistics show that illegal cigarette brands benefit from the price difference due to tax evasion, while the legal industry bears the burden of increased taxes on cigarettes. It is expected that the market share of illegal cigarettes will reach 50%.
Illicit tobacco trade results in tax evasion of more than Rs. 80 billion annually. This amount could be utilized to address budget deficits and improve the welfare of people affected by inflation. Therefore, it is vital that the government takes effective measures to curb the illicit tobacco trade and bring it into the documented sector, ensuring the proper collection of taxes and the provision of resources for the betterment of society.