The federal government’s efforts to reduce cigarette consumption by raising the tobacco tax rate have failed due to the open prevalence of cheaper non-duty-paid cigarettes in the Pakistani market.
This is resulting in the continued consumption of illegal cigarettes.
Out of a total consumption rate of 80 billion cigarettes, an estimated 32.6 billion illegal cigarettes are consumed, making it difficult for the government to control the overall consumption rate.
According to recent regional data, Pakistan has one of the least affordable cigarette markets among South Asian and WHO Eastern Mediterranean Region (EMR) countries and its affordability has significantly worsened over the past three years resulting in downtrading however the number of cigarette consumers is rising over the years.
Recent data shows that cigarettes in Pakistan are the fourth least affordable among the 15 WHO EMR countries relative to income levels in 2023. Among the six South Asian countries, Pakistan ranks third in terms of the least affordable cigarette market in 2023.
In comparison to income levels, cigarette affordability in Pakistan has worsened the second most during the period 2020-23 among the 15 WHO EMR countries and the most among the six South Asian countries. These statistics disprove the claim of anti-tobacco organizations that cigarettes are cheaper in Pakistan than in most countries in the world, and that smoking can be curbed by increasing taxes.
Additionally, statistics on overall cigarette sales show that the legal industry alone bears the burden of increased taxes on cigarettes while illegal brands benefit from the price difference due to tax evasion. It is expected that the market share of illegal cigarettes will reach 50%.
Increasing the tax rate on tobacco may further worsen the affordability of cigarettes, leading to unintended consequences such as an increase in illicit trade.
It is estimated that tax evasion from illicit tobacco trade is more than Rs. 80 billion annually, a significant amount that can be used to overcome financial crises such as budget deficits and improve the welfare of people suffering from inflation.
Therefore, it is crucial that the government takes concrete steps to curb the illicit tobacco trade and bring it into the documented sector, ensuring the proper collection of taxes and the provision of resources for the betterment of society.
