Pakistan Faces Significant Revenue Loss Due to Illegal Cigarette Sales, NUST Report Reveals

Current excise duty structure on tobacco products had pushed the consumers to down-trade from legally compliant cigarette brands to illegal tax-evaded brands easily available all across Pakistan, because of which the national exchequer was expected to face a revenue loss of around PKR310b annually with illicit cigarette brands having more than 60% of the total market.

This was highlighted in a report titled, ‘Illicit Cigarette Trade in Pakistan – Current Situation and Way Forward’, produced by the National University of Sciences & Technology (NUST). The report was formally launched in a ceremony held at a local hotel.

Federal Minister for Defence, Khawaja Muhammad Asif and the Pro-Rector of Research Innovation and Commercialization, NUST, Dr. Rizwan Riaz graced the event. They were briefed on the complex challenges in administration, revenue collection, policy coordination, and market dynamics, of the cigarette industry which are causing significant tax revenue losses for the national exchequer. Additionally, the inadequate enforcement of existing laws, rules, regulations, and policies has further bolstered the illicit sector.

While quoting efficacy of the Track and Trace System (TTS) under the government’s enforcement regime, the report mentioned that the TTS had been aimed at reducing the levels of illicit trade in the country. Contrary to that goal, the illicit trade had increased since its implementation. This increase of illicit cigarette trade is feared to cause the market shares of the illicit sector to exceed 60% of the total market in 2024, leaving a dwindling legitimate sector share.

To counter the challenges faced by the legitimate tobacco industry, the report urged the government to come up with a well thought-out strategy including excise duty structure reforms, modified price threshold, increased enforcement of the law against sales of non-compliant brands, and extensive and consistent implementation of TTS. ‘Increased law enforcement especially in the areas like AJK could help reduce infiltration of local tax-evaded brands into Pakistan, which is the main component of the illicit cigarette trade with a share of 90%’, the report suggested.

During his speech, Mr. Asif said, “Track and Trace system can only work when it is coupled with proper retail level enforcement. It was done by the previous Government as a tick in the box exercise. We are revisiting this system and will ensure that the right system is installed.”

He further said, “Our enforcement measures in AJK are bearing fruit with more than 4 billion cigarette sticks worth of raw material being seized. Furthermore, closure of counterfeiting factories in Islamabad, Multan and Jamshoro showcases the resolve of the Government against illicit trade. We are aware of this issue and are tightening the noose on this annual PKR300b loss.”