IslamabadPakistan is losing more than 300 billion rupees every year due to a broken tax system that has strengthened the rise of illegal cigarette trade. This not only exhausts tax revenues, but also defies the effectiveness of state control.
The disturbing discovery comes from a new report entitled “Towards an ideal tax system for the Pakistani tobacco sector”, which was composed by the distinguished economist, Sakib Sherbani, presented by Act Alliance Pakistan in a recent event in Islamabad.
Act Alliance Pakistan, a civil society group founded in 2016 to address illegal economic activities, including tax evasion and smuggling, appreciates that Pakistan suffers from an annual loss of $ 100 billion in various illegal sectors.
The report stresses the urgent need for strong and enforceable policy reforms to combat the rapid growth of the illegal cigarette market, which has now taken a dominant position. It highlights that the current tax policy has become counterproductive, with the high taxes that now push consumers towards cheaper and non -tax cigarettes instead of strengthening state revenues.
Pakistan’s legal cigarette market is witnessing a sharp decrease in sales, with cigarette demand flexibility flexibility in -1.4. This indicates that the large price increases lead to a decrease in legal purchases and pushing consumers towards illegal alternatives.
“The current tax policy on cigarettes is defective and ineffective. This was not only encouraged by illegal trade but also caused the main market distortions.”
For the first time in the country’s history, illegal cigarette sales exceeded legal sales for two consecutive years, now represented 56 % of the total market share. Despite the repeated tax increases on legitimate brands, these measures failed to achieve their revenue goals, and instead, which prompted consumers to search for unlimited options.
Mobashir Akram, the National Alliance in the actions of Pakistan, warned, “The unrestricted increase in illegal cigarette trade is not only related to the income of lost taxes; it is an economic crisis.” He added: “The illegal trade, in all sectors, generates corruption, discourages investment, and impedes the government’s ability to provide basic services. The government must take immediate steps to impose tax laws effectively.”
The report criticizes the tobacco tax system in Pakistan, which has increased illegal cigarette sales, a significant revenue shortage, and the high public health concerns. It calls for a more balanced tax system that improves government revenues and reduces market abnormalities caused by excessive taxes.
Mubashir Akram also pointed out that the current approach has unfairly burdened legal actions while allowing illegal operations to prosper. However, he believes that with correct reforms – such as rationalizing consumption taxes and imposing strict measures against illegal institutions – Pakistan can secure a more stable economic future.
The report includes many policy recommendations, including the best implementation against cigarette brands that are in line with taxes, ensuring complete compliance with track and tracking systems, and stopping excessive tax increases in legitimate companies.
“The current tobacco tax fails to fail. It drives the official sector sales down and accelerates the illegal trade, which leads to significant losses in revenue. The more balanced and effective tax system is necessary to generate sustainable revenues, reduce market distortions, and address public health risks.”
ACT Alliance Pakistan called for coordinated efforts from the government, organizational bodies, civil society, and the media to address illegal economic activities. “The cost of inaction is very high. Mobashir Akram said:” The financial stability in the country, the investor’s confidence and economic sovereignty depends on the dismantling of the illegal economy and the guarantee of a fair transparent system for all. “
