ISLAMABAD: British American Tobacco (BAT) has called on the government to reconsider its heavy taxation on smokeless products, including vapours, and to take stronger measures against the rising illicit cigarette trade. The company warns that the government could lose Rs34 billion in tax revenue in the current fiscal year due to the expanding black market.
A delegation from BAT and its affiliate Pakistan Tobacco Company (PTC) met with Finance Minister Muhammad Aurangzeb this week to discuss these concerns. According to PTC executive Asad Shah, last year’s steep 2,500% increase in duties on vapours required a price hike of at least 3,000% to break even. This led PTC to exit the market, leaving the door open for smuggled vapours to dominate.
PTC Managing Director Syed Ali Akbar said the company raised the issue of these excessive duties with the finance minister, who acknowledged the negative impact of illicit cigarettes and agreed that policy changes are necessary. BAT is focusing on expanding its portfolio of smokeless products like vaping and oral nicotine pouches as part of its strategy to shift away from traditional cigarettes. By 2035, the company plans for more than half of its revenue to come from smokeless products, according to Chief Corporate Officer Kingsley Wheaton. However, Wheaton emphasized that reaching these targets depends on policy support from both governments and public health regulators.
Last year, BAT earned 17.5% of its total revenue from smokeless products. The company is actively working to reduce the health risks associated with tobacco use by promoting alternatives with lower health impacts.
However, the formal tobacco industry in Pakistan is suffering due to rising taxes and the aggressive spread of smuggled and non-duty-paid cigarette brands. Following the government’s tax hike in the last budget, smokers have shifted from expensive, taxed brands to cheaper, illicit options. The share of untaxed and illicit cigarettes has surged from 22% to 54%, according to BAT.
It is estimated that Pakistan’s annual cigarette sales reach around 79 billion sticks, with 46 billion of those being sold in the informal market without paying taxes. As a result of the 200% excise duty increase in 2023, the formal tobacco sector has contracted significantly, leading to a projected revenue drop for the government. Asad Shah predicts a reduction of Rs34 billion in revenue—about 12% less than the Rs277 billion the government received last year from regulated manufacturers. Consequently, formal sector sales are expected to fall by 8.3% from 36 billion sticks to 33 billion sticks.
Despite the shift to illicit brands, the number of smokers has remained stable. Shah also noted that the government’s track and trace system, designed to curb the illegal trade, has proven ineffective due to poor enforcement, with smuggled cigarettes continuing to be sold openly in some areas.
Kingsley Wheaton highlighted that around 45% of Pakistan’s adult population smokes, a stark contrast to Sweden, where the introduction of smokeless products has reduced the smoking rate to about 5%. Wheaton further pointed out that the formal tobacco sector contributed $900 million in taxes to Pakistan’s government last year, a figure that could more than double if illicit cigarette sales were curbed.
BAT has also launched its Omni platform in Pakistan, a global initiative to raise awareness and promote informed discussions around tobacco harm reduction. The platform is part of BAT’s broader goal to create a smokeless future through scientifically backed innovations.
BAT claims that illicit cigarettes now account for 54% of total cigarette consumption in Pakistan, underscoring the urgent need for stronger action against the illicit trade.
