In 2021, the illicit trade of cigarettes in Pakistan is expected to result in a revenue loss of Rs. 77.8 billion, representing a market share of 38%.
According to a report released on Tuesday by Oxford Economics, the legitimate cigarette industry’s long-term viability and the significant tax revenues generated by Pakistan Tobacco Company (PTC) are jeopardized by the large illicit market, which accounted for 38 percent of cigarettes consumed in Pakistan in calendar year 2021, with over 200 illicit cigarette brands selling below the minimum mandated price.
According to the report, PTC’s traditional tobacco industry and its value chain contributed Rs. 123 billion to Pakistan’s GDP in 2021.
In recent years, the rise in illicit cigarette market share has coincided with a substantial increase in excise rates. Excise
Most legal cigarettes have virtually doubled in price. Tier 2 excise rates, which account for 92 percent of overall industry volume, were raised from Rs. 854 per thousand to Rs. 1,650 per thousand with the September 2018 supplementary budget and the June 2019 Federal Budget.
Government revenues are being harmed by the continued usage of illegal cigarettes. Despite the increase in excise rates, the government’s revenue from legitimate cigarette taxation is expected to fall to Rs.117 billion in 2019–20, a 6% decrease from the previous year.
Excise rates were not changed in 2020-21 due to the volatility of receipts and the growing illegal share. As a result, there was no change in the price differential between duty-free (illicit) and legal brands, as there had been in recent increases. In 2020-21, government revenues from legal cigarette sales increased by 14% to Rs 134 billion.
Illicit cigarettes are less expensive than legal, tax-paying equivalents because they avoid both excise and sales taxes.