Illicit Tobacco Trade Costing Rs 77bn to Exchequer: Report

KARACHI: The capacity to raise revenue from taxes is a fundamental requirement for the functioning of any nation.

One clear and immediate target for increasing revenue collection is Pakistan’s illicit trade. A recent report by Harvard economists revealed that the top 12 commodities smuggled into the country are worth as much as USD 3.3 billion a year, and growing. These commodities range from cellphones and fuel to daily use items such as toiletries and tea. As many as 300,000 tonnes of textiles were also smuggled into the country, according to the report.

When diving deeper into the case of Pakistan’s hefty tobacco industry, it becomes clear that cigarettes are, unfortunately, a regular part of the lives of millions of Pakistanis. The total market size of the tobacco industry is estimated at 81.2 billion sticks per year. Unfortunately, the sector is divided into two main categories; the legitimate, and the illegal. The legitimate market share of companies in the tobacco industry currently stands at approximately 62%, while the illicit sector takes up a mind-blowing 38%.

There are currently two companies that pay 97% of the total industry’s tax to the government, amounting to PKR 113.9 billion (FY 19/20). The rest of the 30 companies operate illegally, capturing close to 40% of the market share with more than 200 brands of cigarettes. They pay only PKR 3.1 billion - just 3% of Pakistan’s total tobacco tax collection. This translates into a revenue loss of more than PKR 77 billion a year.***