Illegal cigarette trade constitutes revenue, regulatory challenge

LAHORE: The rise of illicit cigarette manufacturing and sales has emerged as one of Pakistan’s most serious revenue collection and regulatory challenges.

While tobacco remains a contentious legislative issue, the scale and proliferation of tax-evading brands continue to weaken the system from within.

Illicit tobacco products now account for a major fraction of the market, avoiding taxation, regulation, and health warnings. These low-cost, unregulated cigarettes not only disrupt fair market competition, but they also deplete government funds that could otherwise be directed toward important programs. Conservative estimates show that the unchecked selling of these items causes annual tax losses of more over Rs 415 billion, sources said.

The uneven playing field poses a serious challenge for legitimate businesses who follow tax rules and regulatory procedures. These compliant players find themselves in a difficult position, losing market share to low-cost illicit products that are widely available across both urban and rural markets, the sources said, adding: “Rising tax rates were supposed to discourage smoking, but in practice, they have inadvertently encouraged the move to cheaper, illicit alternatives. With price becoming a deciding factor for many consumers, particularly those in lower income groups, tax-paid items struggle to remain viable.”

Economic analyst Osama Siddiqui said, “A full-scale crackdown, backed by stronger market inspections and consistent penalties, is essential to recover lost revenue and protect compliant businesses. As Pakistan continues to face economic pressure, a coordinated crackdown, backed by stronger tracking systems and inter-agency collaboration, can help restore lost revenue and protect compliant market players from further erosion.”

Copyright Business Recorder, 2025