While late to the party, Pakistan has launched a federal and provincial crackdown on the illicit cigarette trade, after a new Oxford Economics report found that illegal cigarettes now account for more than half of the country’s tobacco market.
Speaking at the launch of the report, Minister of State for Finance Bilal Azhar Kayani said the federal government, in coordination with provincial authorities, has begun a nationwide enforcement drive against the sale and manufacturing of untaxed cigarette brands. He said several illegal manufacturing units have already been shut down, while raids against retailers selling illicit products are continuing.
According to the report, titled An Economic Assessment of the Illicit Cigarette Market in Pakistan, illegal cigarettes now account for 43.5 billion sticks, placing Pakistan among the largest illicit cigarette markets globally. Total annual consumption has remained around 80 billion sticks, but legal sales have steadily been displaced by untaxed products.
The study identified sharp increases in excise duties as a key driver behind the shift. Between the first quarter of 2022 and the second quarter of 2023, real excise taxes rose by 107 percent, widening the price gap between legal and illegal cigarettes. On average, illicit brands remained 36 percent cheaper, encouraging consumers to switch.
The report said around 64 percent of the illicit cigarette market is produced domestically, mainly in Azad Jammu and Kashmir and Khyber Pakhtunkhwa, while the remaining 36 percent is linked to smuggling routes through Afghanistan, including brands associated with the United Arab Emirates and South Korea.
Oxford Economics estimated that revenue losses from illegal cigarettes range between Rs. 274 billion and Rs. 343 billion, potentially exceeding total excise collections from legal cigarette sales. Officials said the crackdown will focus on manufacturing units, border routes, retail markets, and stricter compliance with the track and trace system.
