ISLAMABAD: Tax experts have urged the government to avoid overburdening the legitimate industry and salaried class, warning that excessive taxation could further encourage tax evasion in the country.
Speaking at the launch of a report on the impact of high taxes on prices, Sakib Sherani, former principal advisor to the Ministry of Finance, emphasized the need for a balanced and well-enforced tax regime to ensure sustainable revenue generation while minimizing market distortions and public health risks.
The report, titled Pakistan’s Tobacco Tax Policy Boosts Illicit Trade, was co-authored by Sherani and launched by ACT Alliance Pakistan at an event in the capital. He highlighted that tax policy failures are causing an estimated Rs. 300 billion revenue loss in the tobacco sector alone.
Sherani noted that higher prices on legal cigarette brands have driven consumers toward cheaper, tax-evading alternatives, depriving the government of much-needed revenue. “The current tax policy on cigarettes is failing on multiple fronts,” he said. “Not only has it encouraged the expansion of illegal trade, but it has also created severe market distortions.”
He pointed out that the formal sector, which contributes over 98 percent of tax revenue from the industry, is shrinking, while illegal operators continue to thrive without accountability. ACT Alliance Pakistan, a civil society network working to combat illegal economic activities, estimates that the country loses nearly $100 billion annually due to tax evasion, smuggling, and counterfeiting.
The report revealed that, for the first time in Pakistan’s history, illegal cigarette volumes have surpassed legitimate sales for two consecutive years, now comprising 56 percent of the total market.
Mubashir Akram, National Convenor of ACT Alliance Pakistan, stressed that illegal trade across all sectors fuels corruption, discourages investment, and weakens Pakistan’s ability to provide essential public services. He urged the government to ensure strict implementation and enforcement of tax laws nationwide.
The report argues for a balanced tax regime that maximizes government revenue while addressing market distortions caused by excessive taxation. It recommends strengthening enforcement against tax-evading cigarette brands, ensuring full compliance with the Track and Trace system, and avoiding predatory tax hikes on legally compliant businesses.
Sherani stated that if real reforms are implemented, excise duties are rationalized
