ISLAMABAD: A senior representative of British American Tobacco (BAT) has urged the government to refrain from increasing Federal Excise Duty (FED) on cigarettes in the upcoming Budget 2026-27, warning that further tax hikes could accelerate the growth of Pakistan’s already large illicit tobacco market.
Speaking to journalists, Simon Trussler, Group Head of International Trade and Fiscal Affairs at BAT, stressed the need for tax stability, arguing that consumers are no longer able to absorb repeated and sharp increases in cigarette prices driven by higher duties.
He said recent stability in tobacco taxation had started to yield positive outcomes, including improved legal sales volumes, and called on policymakers to prioritise predictability over abrupt fiscal measures.
According to Trussler, Pakistan now ranks among countries with the largest illicit cigarette markets globally, claiming that illegal products account for nearly 55% of total consumption. He noted that widespread tax evasion continues to cause significant revenue losses.
Officials at the Federal Board of Revenue (FBR) are aware of the issue and have taken enforcement steps, he said, but acknowledged that the scale of the challenge remains substantial.
Trussler argued that steep increases in tobacco taxes between 2022 and 2023 unintentionally boosted illicit trade instead of enhancing revenue collection. Data shared during the briefing suggested that in 2023-24, around 58% of cigarette consumption was illicit, with a majority produced domestically.
Citing findings from Oxford Economics, he said Pakistan’s tobacco tax policy has failed to meet its dual objectives of increasing revenue and reducing consumption.
Despite repeated tax hikes, overall cigarette consumption has remained largely unchanged at approximately 80 billion sticks annually since 2012, while demand has shifted toward untaxed or under-taxed brands.
He explained that sharp price increases for legal cigarettes have made them unaffordable for many consumers, pushing them toward cheaper illicit alternatives instead of discouraging smoking.
Following cumulative tax increases exceeding 100% above inflation between early 2022 and mid-2023, a significant price gap emerged. In 2023-24, illicit cigarettes were estimated to be sold at roughly 47% of the price of duty-paid products, creating a strong incentive for consumers to switch.
Trussler also challenged claims by some global health bodies, including the World Health Organization, that taxation does not drive illicit trade, asserting that international evidence shows a strong link between affordability and illegal market expansion.
He added that more than 80% of cigarette price increases in Pakistan are driven by taxes, while low pre-tax industry margins have made it difficult for compliant manufacturers to remain competitive.
On enforcement, Trussler acknowledged that Pakistan’s track-and-trace system is a useful monitoring tool but said it must be supported by consistent inspections and supply chain controls to be effective.
He pointed to recent enforcement actions, including seizures of raw materials and smuggled cigarettes, as well as the sealing of illegal factories, as signs of government commitment. However, he emphasised that sustained action across manufacturing, distribution, and retail levels is critical to effectively curb illicit trade.
