ISLAMABAD: Defence Minister Khawaja Muhammad Asif has suggested that reducing Cigarette taxes could help tackle illegal manufacturing and increase government revenue. His comments come as policymakers prepare the federal budget for FY2026-27.
In a statement shared on social media, the minister said representatives of the legal tobacco industry had approached him with concerns about current tax policies. According to him, industry stakeholders believe lower tax rates could encourage greater compliance and reduce tax evasion.
Khawaja Asif said he generally agrees with the argument that excessively high taxes can contribute to the growth of illegal markets. He noted that when taxes become too high, illegal operators often find opportunities to expand their activities.
The minister said the illegal Cigarette trade continues to remain a major challenge despite enforcement efforts. Authorities have conducted operations against unlawful factories in recent years, but illegal production has continued in different parts of the country.
According to Khawaja Asif, some unauthorized manufacturers have even shifted operations to unusual locations to avoid detection. He claimed that certain illegal Cigarette factories are operating from places such as poultry farms and other hidden sites.
The minister estimated that the illegal tobacco sector is causing annual tax losses of around Rs300 billion. He argued that reducing tax rates could make legal products more competitive and reduce incentives for smuggling and tax evasion.
He also suggested that lower taxes could help weaken the illegal market by encouraging consumers to purchase legally manufactured products. This, in turn, could improve overall tax collection and strengthen government revenues.
Khawaja Asif further criticized weaknesses in tax administration and enforcement mechanisms. He said improving revenue collection systems is equally important for addressing financial losses linked to the tobacco sector.
Supporters of the proposal argue that a balanced taxation policy may help bring more businesses into the documented economy. They believe that stronger compliance could offset some of the revenue losses associated with lower tax rates.
However, any decision regarding Cigarette tax rates will be made as part of the federal budget process. Government officials are currently reviewing various fiscal proposals ahead of the announcement of the FY2026-27 budget.
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The discussion highlights ongoing concerns about tax collection, illegal manufacturing, and revenue generation. Policymakers will ultimately decide whether changes to Cigarette taxation can help address these challenges while maintaining government income.
