The legitimate tobacco industry in Pakistan faces continued challenges as illicit cigarette sales have reached alarming levels shared representatives of Pakistan Tobacco Company. With illicit cigarette sales reaching alarming levels, PTC’s noted a staggering decrease of nearly 0.8 billion cigarette sticks for Q1 of the current fiscal year, compared to the same period in the previous year. This shortfall reflects the heavy toll that illicit trade is taking on legitimate businesses and government revenues, which are essential for funding projects critical to Pakistan’s growth.
The economic fallout from the rise of illicit cigarette sales is multifaceted. The FBR’s recent statement in the Senate Standing Committee of 50% of cigarettes sold in Pakistan being illegal highlights the issues faced by the sector. The February 2023 unprecedented Federal Excise Duty increase of more than 150% continues to harm the legal sector as higher prices have inadvertently fuelled a shift from legal brands to cheaper, illegal alternatives. The result is an estimated PKR 300 billion in lost government revenue, depriving the state of funds that could otherwise be invested in public services, infrastructure, and economic development initiatives.
Highlighting recent missed opportunities in the international market, PTC’s Senior Regulatory Affairs Manager, Qasim Tariq, shared insights into a critical export loss for Pakistan. Earlier this year, PTC had secured an order to export cigarettes worth USD 20.5 million to Sudan, a deal that would have provided Pakistan with invaluable foreign exchange. However, despite support from the Special Investment Facilitation Council (SIFC) and endorsement from the Prime Minister, the deal was lost due to delays in decision-making by officials in the Ministry of Health and propaganda from certain anti-tobacco groups. The order was subsequently awarded to a neighbouring country, costing Pakistan not only an economic opportunity but also valuable foreign reserves that are crucial to the country’s fiscal health during challenging economic times.
“Certain clauses of the World Health Organization’s Framework Convention on Tobacco Control (FCTC) were misinterpreted and used as the basis to challenge this export order,” Tariq explained. “Ironically, the neighbouring country that ultimately won the contract is also an FCTC signatory, like Pakistan and Sudan. This incident illustrates the harmful effects of misinformation and the economic harm that can arise from the unchecked influence of certain advocacy groups on public policy.”
PTC acknowledged and commended the Federal Board of Revenue (FBR) for its recent enforcement efforts against illicit tobacco trade. However, Tariq emphasized that isolated enforcement measures will not be enough to address the problem. The market for illicit products remains strong due to limited resources of the FBR, and inconsistent enforcement at the retail level, where illicit cigarettes are widely accessible. PTC strongly advocates for the full and consistent implementation of a Track & Trace system in all regions, including Azad Jammu & Kashmir (AJK), to enable authorities to identify and monitor products, reduce tax evasion, and ensure only legitimate products reach consumers. The persistent lack of a robust Track & Trace system continues to be a roadblock in Pakistan’s fight against illegal trade.
