Defence Minister Khawaja Muhammad Asif has suggested that reducing cigarette taxes could help curb illegal cigarette manufacturing and increase government revenues, as policymakers prepare the federal budget for FY2026-27.
In a post on X, the minister said representatives of the legal tobacco industry had approached him with the argument that lower tax rates would reduce incentives for tax evasion and encourage greater compliance within the sector.
It would also deprive dishonest tax officers of their illicit earnings from the sector, he added.
Khawaja Asif said he generally agreed with the view that excessively high taxes can contribute to the growth of illegal markets. He said that despite crackdowns on illicit cigarette factories in recent years, illegal manufacturing operations have continued to spread across multiple provinces.
The minister alleged that some unauthorized cigarette manufacturers have shifted operations to unconventional locations, including poultry farms, to evade enforcement actions.
He said the illegal cigarette trade is estimated to be causing annual tax losses of around Rs. 300 billion to the national exchequer. He argued that reducing tax rates could make legal production more competitive and lessen incentives for smuggling and tax evasion.
The defence minister also criticized weaknesses in tax collection and enforcement, suggesting that better revenue administration could significantly improve government finances.
While Khawaja Asif’s remarks reflect support for a review of tobacco taxes, any changes to cigarette tax rates would ultimately be decided as part of the federal budget process.
