LAHORE: With the illicit cigarette trade accounting for a whopping 56-58 percent of the market share, Pakistan’s tobacco industry is in crisis mode, which is resulting in massive tax losses and undermining the formal sector.
According to industry estimates, each illicit cigarette results in a tax loss of approximately Rs9, adding up to a staggering Rs400 billion annual loss to the national exchequer. The dominance of untaxed and counterfeit cigarettes has not only deprived the government of critical revenue but has also created unfair competition for legitimate businesses, the sources said.
Legal tobacco companies, which contribute nearly Rs270 billion in taxes annually, are rapidly losing market share, now estimated to have fallen to just 42 percent. The situation is further exacerbated by the widespread sale of fake or unregistered cigarette brands that violate minimum price regulations and escape taxation altogether, the industry sources said.
Experts point to the government’s inconsistent efforts to enforce a technology-based Track & Trace system as a major contributor to the problem. The system, designed to digitally monitor the production and sale of cigarettes through tax stamps, has yet to be fully implemented across the tobacco industry. Prime Minister Shehbaz Sharif has issued directives to ensure enforcement, but experts say the response on the ground remains weak.
Without across-the-board implementation of the Track & Trace system, the illicit trade will continue to grow, further destabilizing Pakistan’s economy. To combat the illicit trade, experts recommend that the government tighten border controls, enforce tax stamp regulations, and increase penalties for smuggling and counterfeiting.
“By tightening border controls, enforcing tax stamp regulations, increasing enforcement at the retailer level, and increasing penalties for smuggling and counterfeiting, the government can significantly reduce illegal trade and recover billions in lost revenue,” said Osama Siddiqui, a macroeconomic analyst. “Educating retailers on how tax stamps work and how to verify legal products is also crucial in preventing the spread of untaxed goods,” he added.
Copyright Business Recorder, 2025