The growing illicit cigarette trade is severely undermining Pakistan’s tobacco sector and tax revenue, with experts questioning the effectiveness of the government’s current strategy. By bringing the illicit trade into the tax system, tobacco sector revenues could increase from Rs 270 billion to Rs 700 billion annually.

“This is not just a law enforcement issue; it’s an economic emergency,” said economic analyst. “We’re losing hundreds of billions of rupees every year, while legal businesses are burdened with excessive taxes.” Siddiqui emphasized that when the government raises taxes, illicit companies benefit by expanding their market share, further disadvantaging legal businesses.

Despite holding only 46% of the market, legal tobacco companies contribute nearly 98% of the sector’s tax revenue, highlighting a significant tax compliance gap. Meanwhile, the illicit market is costing Pakistan an estimated Rs 415 billion annually, exacerbating the country’s fiscal challenges.

The surge in the illegal cigarette trade is largely driven by the price difference between legal and illicit products. As taxed cigarettes become more expensive, consumers increasingly turn to cheaper, untaxed alternatives. According to IPSOS, the illicit market share has grown from 33% to 54%, putting compliant companies at a disadvantage.

Experts argue that addressing the illegal trade could improve tax compliance and public health outcomes, as unregulated products continue to pose significant health risks. To tackle this issue, experts are calling for stronger enforcement of excise duties across all manufacturers, regardless of their origin. Without this shift, the expansion of the illicit cigarette trade will continue to undermine both the economy and public health