Tobacco tangle

The Pakistani market is grappling with challenges stemming from a surge in illicit trade and smuggling, particularly in key sectors such as tobacco. Illicit trade in tobacco has been steadily increasing since the last FED hike. A significant 50 percent of the tobacco market is now dominated by illicit cigarettes, resulting in an estimated annual loss of 240 billion rupees for the government.

The extent of illicit tobacco in Pakistan is alarming: out of the 100 billion cigarette sticks circulating in the country, more than 50 percent are illicit. This widespread infiltration underscores the significant impact of illicit tobacco trade on Pakistan’s economy.

Industry experts advocate for a considerate approach, moving away from burdening legal tobacco with higher taxes. Instead, they propose a strategic shift, bringing illicit tobacco manufacturers into the tax system. This move aims not only to increase revenue but also to formalise the economy— a crucial step for sustainable growth, according to experts.

Documenting and taxing illicit tobacco trade would substantially boost the economy. By legitimising and taxing these businesses, the government can ensure they contribute to the tax pool. This step is essential for fortifying the economic framework and mitigating the negative impact of illicit trade. 

Moreover, it aligns with broader public health goals by controlling the prevalence of illicit tobacco and regulating the flow of unregulated cigarettes into the market. The current situation emphasises the need for a comprehensive approach. While raising taxes on legal tobacco might seem like a straightforward solution, it often leads to unintended consequences, such as an increase in illicit trade. 

By integrating illicit manufacturers into the formal economy, Pakistan can improve its tax-to-GDP ratio, enhance financial stability, and protect public health simultaneously. The path to sustainable growth involves strategic policies that support both economic strength and public well-being. 



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