A growing debate in Pakistan questions whether raising tobacco taxes is the right approach to reducing smoking rates. While higher taxes are intended to deter consumption, Fawad Khan, spokesperson for Mustehkam Pakistan, warns that this strategy may do more harm than good by driving consumers toward cheaper, illegal cigarettes.
According to reports, the legal tobacco sector currently contributes approximately 98% of the taxes collected from the tobacco industry, while the illicit sector contributes a mere 2%. Since the last tax hike in 2023, illicit tobacco now accounts for over 50% of the total market. As taxes rise, many smokers shift to illegal cigarettes, leading to an estimated annual tax revenue loss of over Rs 300 billion for the government.
Fawad Khan has urged policymakers to reconsider their approach. He stated that increasing tobacco taxes places an excessive burden on companies already heavily taxed while also harming the economy by fueling illegal trade.
“We need to create a fair environment for tax-compliant businesses, including those in the tobacco industry,” he said.
He added, “Instead of overburdening the legal market with higher taxes, it is crucial to focus on tackling the illegal trade. This will help protect public health and strengthen our economy.”
The rise of the illicit tobacco market poses not just an economic threat but also a significant risk to public health. Even the International Monetary Fund (IMF) has raised concerns over tax evasion in Pakistan’s cigarette sector during its recent review visit for the loan program.
The spokesperson stated that ATOs, allegedly backed by illicit tobacco manufacturers, continue to push for higher taxes on legal cigarettes without proposing effective strategies to curb the sale of illegal ones. This approach not only fails to address the root cause of the problem but also exacerbates the challenges faced by the regulated industry.
These organizations aim to influence policymakers by leveraging the World Health Organization (WHO), whose integrity has been questioned by the U.S. government, leading to the suspension of its funding.
As Pakistan grapples with the challenges surrounding tobacco, experts urge the government to implement comprehensive strategies that address both the legal and illegal tobacco markets rather than solely focusing on tax hikes for the legal tobacco sector.
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