Pakistan holds the title for the largest market of illicit cigarettes worldwide, as stated by Simon Trussler, Head of International Trade and Fiscal Affairs at British American Tobacco (BAT) Group. With illicit cigarettes constituting 55% of the market share in Pakistan, the country stands out for significant tax evasion, notes Business Recorder. Despite efforts by the Federal Board of Revenue (FBR) to address the issue, the prevalence of illicit cigarettes remains a major challenge.
A recent report by Oxford Economics highlights that Pakistan’s cigarette fiscal policy has not met its intended objectives in terms of tax revenue or reducing overall cigarette consumption. Trussler emphasized that despite higher cigarette taxes, the total consumption of cigarettes in Pakistan has not decreased significantly, remaining stable at 80 billion sticks since 2012. Notably, a shift towards illicit brands has been observed following substantial tax increases.
Trussler has urged the government to refrain from raising the Federal Excise Duty (FED) on cigarettes in the upcoming budget (2026-27), citing consumer inability to absorb excise shocks. The surge in illicit cigarette consumption largely stems from the diminished affordability of legal, tax-paid brands due to tax hikes, creating a significant price disparity between legal and illicit products. Over 80% of cigarette price hikes in Pakistan have been linked to tax increments.
Data from the World Health Organization (WHO) indicates that in 2024, Pakistan had one of the lowest pre-tax cigarette prices globally, standing at less than 20% of the worldwide average. This disparity incentivizes local manufacturers to engage in illicit operations, avoiding taxes and reaping higher profits, according to the report.
