Govt urged to review tobacco taxes
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Experts have cautioned that the government's current tobacco taxation policy, if left unchanged in the upcoming 202526 federal budget, could jeopardize Pakistan's revenue targets. They emphasized the importance of basing fiscal decisions on real-world economic conditions, rather than solely relying on data and recommendations from health advocacy groups, both local and international.
To ensure a balanced and effective budget, they urged policymakers to consider the broader economic impact of tax policies, particularly those affecting high-revenue sectors like tobacco, before finalising critical decisions. According to official data, Pakistan has the potential to generate more than Rs600 billion annually from the tobacco sector. Yet this year, only less than Rs300 billion is expected to be recovered.
The remaining staggering amount of over Rs300 billion, equalling more than the combined federal budgets for education and health is lost to the illicit cigarette trade.
The two major multinational companies, holding 44% of the cigarette market, paid Rs292 billion in taxes during the 2023-24 fiscal year. In stark contrast, over 40 domestic manufacturers, controlling 56% of the market, contributed just Rs5 billion.
"The illegal sector now controls more than half the market and pays virtually nothing in taxes. What more evidence do we need?" Fair Trade in Tobacco Chairman Amin Virk questioned as he emphasised the importance of balance.
"Yes, taxation has a role in public health, but you cannot ignore the economic consequences in developing countries like ours. When half the market goes underground, you lose the revenue and the ability to enforce health regulations."
According to a recent report by the Policy Research Institute of Market Economy (PRIME), illegal trade costs Pakistan Rs3.4 trillion annually, equivalent to 26% of the federal tax target. This includes Rs1 trillion lost via misuse of the Afghan Transit Trade, Rs270 billion from smuggled petroleum, Rs65 billion from counterfeit pharmaceuticals, and Rs106 billion from illegally imported tires.
Despite recent enforcement efforts and industry engagement, Pakistan's tax system remains structurally weak, with over 40% of the economy still operating informally and a narrow base of compliant taxpayers.
Virk urged the government to act swiftly to ensure and enforce fair taxes in tobacco sector.
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