Pakistan to launch crackdown on illicit cigarettes as revenue losses hit up to Rs343 billion

The government has announced a nationwide crackdown on illicit cigarette trade as revenue losses are estimated to range between Rs200 billion and Rs343 billion annually, according to official figures and an independent report.

Minister of State for Finance Bilal Azhar Kayani said Federal Board of Revenue (FBR) estimates indicate around Rs200 billion in annual losses due to illegal cigarette sales, while Oxford Economics has placed the figure between Rs274 billion and Rs343 billion.

Speaking at the launch of the Oxford Economics report, Kayani said provincial governments would intensify enforcement operations to curb the availability of untaxed cigarette brands, adding that several illegal manufacturing units have already been shut down and raids on retailers are ongoing.

He said controlling illicit trade had become unavoidable, citing its impact on the national exchequer, the documented economy and compliant taxpayers.

The report found that illicit cigarettes now account for more than half of Pakistan’s tobacco market, with around 43.5 billion illegal sticks out of total consumption of about 80 billion annually.

It noted that rising excise duties were a key factor behind the shift, with real taxes increasing by 107% between early 2022 and mid-2023, widening the price gap and making illicit cigarettes about 36% cheaper on average.

The study highlighted that 64% of illegal cigarettes are produced domestically, mainly in Azad Jammu and Kashmir and Khyber Pakhtunkhwa, while 36% are smuggled through routes linked to Afghanistan, often involving brands associated with the UAE and South Korea.

Officials said enforcement efforts would be strengthened across the supply chain, including monitoring production, implementing track and trace systems and tightening customs procedures.

The government has also incorporated enforcement-based revenue targets for the FBR for FY2025–26, with authorities saying international lenders have acknowledged the agency’s capacity to generate revenue through enforcement measures.

Despite existing measures, the report noted limited impact, with only 22 out of 477 cigarette brands fully compliant with the track and trace system, while the share of illicit trade increased after its introduction.

The report concluded that reducing illegal trade would require coordinated long-term action, including predictable taxation and stronger enforcement across borders, supply chains and retail markets.