Illegal tobacco trade in Pakistan is the direct result of tax evasion in the country worth PKR 80 billion every year. They make up roughly 40% of the total tobacco market.
Great tax leakages can be observed in a number of sectors of the country’s economy, caused directly by depleted revenues. If channeled properly, these losses hold the potential for immense benefits to the economy in a variety of ways. Close to all the tax collected in the tobacco industry, amounting to 98% is accounted for by only two companies in Pakistan. These two companies hold more than 60% market share in the tobacco industry, as the remaining 40% remains unaccounted for.
It is because of the illegal trade of tobacco that tax evasion is rampant in Pakistan. There are three main categories of illegal tobacco trade that make up the entire sector – local non-duty-paid cigarettes, smuggled cigarettes, and counterfeit cigarettes. Each category of illegal trade can be held accountable for severe detriment to the national economy and for the violation of several laws of the country.
The largest share of tax evasion amongst the three types of illicit tobacco trade is held by the local, non-duty-paid cigarettes, with a 90+ percent share. Pakistani law dictates that the minimum price of a cigarette pack must be PKR 62.76, inclusive of a minimum tax of PKR 42.12. Around the country, there are around 200 local brands that are selling at rates lower than the mandated minimum price, making illegal cigarettes easily available at more affordable rates than legally allowed. This sets in motion a vicious cycle of illegal trade that causes the entire economy to suffer.