Pakistan continues to suffer massive tax losses due to the unchecked rise of the illicit cigarette trade, with the country losing around Rs. 415 billion annually as enforcement measures fail to keep pace with illegal market expansion.
While commitments have been made to address the issue, enforcement actions on the ground have not kept pace with the scale of the illicit trade. This enforcement gap is enabling illicit operators to grow freely, undermining the formal sector and depriving the national exchequer of much-needed revenue.
“The government needs to take concrete measures to curb the continuous growth in the illicit sector, which is not only hurting the national economy but is thriving due to weak enforcement,” said Fawad Khan, spokesperson for Mustehkam Pakistan.
The Institute for Public Opinion Research (IPOR) has reported that around 54% of cigarette brands sold in Pakistan are illicit.
Despite contributing 98% of the tobacco industry’s total tax revenue, the legal cigarette sector now holds just 46% of the market share and contributes around 270 billion rupees in taxes.
This translates into a direct loss of nearly Rs. 415 billion annually in unpaid taxes and duties. If the illicit sector continues to flourish, the legal sector may further shrink, putting the PKR 270 billion in jeopardy too.
“With illicit cigarette trade on the rise, law enforcement agencies and policymakers must take urgent action to combat smuggling and unregistered production,” said Khan. “Until enforcement measures are effectively implemented, the national treasury will continue to bleed while non-compliant players operate with impunity. Pakistan has done a great job in restricting INGO’s like CTFK and Vital Strategies who with their partners in Pakistan were actively fiddling with policy making and were operating against the laws”
The Track and Trace System, expected to be fully deployed across the tobacco industry by December 2023, still remains partially implemented. Delays in enforcement, lack of routine inspections, and weak penalties have allowed non-compliant entities to bypass the system altogether.
This alarming disparity highlights the urgent need for consistent and targeted enforcement to level the playing field. Stakeholders now urge immediate action through consistent enforcement drives, enhanced tracking mechanisms, and market-level crackdowns to stop the bleeding.
“The enforcement gap is not just a technical issue; it’s the core reason the illicit trade continues to grow unchecked,” Fawad concluded. “Without decisive and sustained enforcement efforts, these losses will keep mounting, making recovery even harder for the formal economy.”
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