Legal Cigarette Sector Shrinks to 42%

In a pre-budget media briefing, Asad Shah, Director of the Pakistan Tobacco Company (PTC), expressed grave concerns over the surging presence of the illicit cigarette trade, which he described as the current market leader in the cigarette sector. He revealed that illicit cigarettes now command a 58 percent share of the market, while the total annual size of the cigarette industry in Pakistan is around 82 billion sticks. According to Shah, the sector has the potential to contribute Rs. 570 billion annually in tax revenue, but only Rs. 292 billion was collected in FY 2023-24, and Rs. 223 billion so far in the first 11 months of the current fiscal year. He said that it is impossible to generate the remaining Rs. 50 billion in just one month, highlighting deep-rooted tax evasion and the role of certain non-governmental organizations working on specific agendas. Twelve years ago, the government collected taxes on 67 billion sticks, but currently, only 34 billion sticks are being taxed. He emphasized that the 2023 tax policy negatively impacted government revenues, marking the second decline in a decade from the tobacco sector. The legal sector now holds only a 42 percent market share but contributes 98 percent of the revenue, he added. Shah urged for strict enforcement of documentation policies across the entire industry, noting that the government-set minimum price for a cigarette pack is Rs. 162.25, whereas 18 billion sticks are being sold at or below Rs. 150 per pack, evading taxes. He pointed out that no one has ever been penalized for violating the minimum price law. He recommended raising the minimum pack price to counter the perception of cigarettes being cheap in Pakistan. “No policy can succeed without non-discriminatory implementation,” he stressed, adding that locally manufactured cigarettes without tax stamps are openly sold. Shah further proposed that if the track-and-trace tax stamp policy cannot be implemented uniformly, it is ineffective. He recommended reducing the adjustable tax on cigarette filter material acetate tow from Rs. 44,000/kg to Rs. 4,000/kg to curb smuggling. This year, 450 metric tons of smuggled acetate tow have been seized by authorities. Shah also proposed that an adjustable tax should be imposed on cigarette paper to ensure complete documentation.