The federal government has announced a nationwide crackdown on illegal cigarette sales, with provinces set to intensify enforcement. A new Oxford Economics report says illicit cigarettes account for more than half of Pakistan’s tobacco market.
Islamabad: The federal government has announced a countrywide operation against the sale of illegal cigarettes, with provincial authorities set to step up enforcement action against untaxed tobacco products.
Speaking at the launch of an Oxford Economics report on illicit cigarette trade in Pakistan, Minister of State for Finance Bilal Azhar Kayani said provincial governments would intensify action to remove the widespread presence of illegal cigarette brands from the market.
Kayani said curbing the illicit cigarette trade had become unavoidable, adding that the unchecked sale of such products was causing major losses to the national exchequer, weakening the documented economy and discouraging compliant taxpayers.
He said a number of illegal cigarette manufacturing units had already been closed, while raids against retailers involved in selling illicit products were continuing.
Report highlights scale of illicit market
According to the Oxford Economics study, titled An Economic Assessment of the Illicit Cigarette Market in Pakistan, illegal cigarettes now make up more than half of the country’s tobacco market.
The report said illicit cigarette sales in Pakistan amounted to 43.5 billion sticks, placing the country among the world’s largest illicit tobacco markets. It added that overall cigarette consumption has remained broadly stable at around 80 billion sticks a year over the past decade, but legal sales have increasingly been replaced by illicit products.
The study identified steep increases in excise duties as a major factor behind this shift. It said that between the first quarter of 2022 and the second quarter of 2023, real excise taxes rose by 107%, significantly increasing the price difference between legal and illegal cigarettes.
According to the report, illicit cigarettes were on average about 36% cheaper, which encouraged consumers to switch to lower-priced products.
“The evidence highlights the risks associated with sharp and unpredictable tax increases, said Andrew Logan, Director of Industry Consulting at Oxford Economics, at the report launch. Pakistan’s experience shows how quickly consumption shifts when affordability and enforcement gaps widen,” it stated.
Domestic production dominates illegal supply
The report said the illicit cigarette market in Pakistan is largely supplied from within the country. It stated that about 64% of tax-evaded cigarettes in the illegal segment are produced domestically, mainly in Azad Jammu and Kashmir and Khyber-Pakhtunkhwa.
It added that the remaining 36% comes through smuggling, largely along routes passing through Afghanistan, involving cigarette brands linked to the UAE and South Korea.
The study said illicit trade is being worsened by porous borders, organised criminal networks and weak enforcement.
“These findings underline the need for sustained, coordinated enforcement across the entire supply chain, Logan added. Without policy predictability and consistent enforcement, illicit operators will continue to undermine revenue collection and legitimate businesses,” it added.
The government’s latest announcement signals a coordinated effort by federal and provincial authorities to target both the production and retail sale of illegal cigarettes, as officials seek to contain revenue losses and address the growing scale of the illicit tobacco market identified in the report.
