The Overseas Investors Chamber of Commerce and Industry (OICCI) has voiced serious concerns over the alarming rise of illicit trade within tobacco sector. In its budget proposals for fiscal year 2025-26, OICCI urged the government to provide immediate tax relief and robust regulatory support to protect legitimate businesses and safeguard vital state revenues.
OICCI’s analysis reveals that Pakistan’s total cigarette market stands at approximately 81 billion sticks annually, valued at over Rs. 700 billion. However, a significant portion of this market, now commanding 53%, is dominated by illicit trade. This includes a substantial 40% from local tax-evading manufacturers and another 13% from smuggled tobacco products. The OICCI warned that this unchecked proliferation of illegal tobacco is costing the national exchequer over Rs. 300 billion annually in lost tax revenues.
The chamber pointed out a stark disparity in tax contributions: while multinational companies like Pakistan Tobacco Company (PTC) and Philip Morris International (PMI) collectively hold a 46% share of the market, they contribute an overwhelming 98% of the industry’s excise and sales tax. In sharp contrast, local manufacturers, most of whom are alleged to evade taxes, command over 40% of the market but contribute a mere 2% in taxes. According to OICCI, this imbalance not only undermines legal tobacco operations but also actively encourages the proliferation of low-cost, illegal tobacco products that circumvent both health regulations and fiscal responsibilities.
Failure to Enforce Minimum Legal Price and Track & Trace
One of the key issues highlighted by OICCI is the critical failure to enforce the Minimum Legal Price (MLP) for cigarettes, which is officially set at Rs. 162.25 per pack. Despite this legal benchmark, illicit tobacco brands are openly sold for as little as Rs. 50 per pack. This significant price gap directly drives consumers towards illegal products, severely harming tax-compliant firms. OICCI emphasized that without strict enforcement of the MLP, the legal tobacco sector will continue to lose market share and revenue.
OICCI also criticized the weak implementation of the Track and Trace (T&T) system, a crucial mechanism intended to monitor tobacco production and distribution. Despite being formally in place, the system has reportedly been rendered ineffective due to poor enforcement, the prevalence of counterfeit tax stamps, and the exclusion of key regions like Azad Jammu and Kashmir (AJK) from compliance mandates.
Impact of Past Tax Hikes and Revenue Sustainability
The chamber referenced the period between May 2022 and February 2023, during which a 200% increase in Federal Excise Duty led to a sharp rise in prices for legal tobacco products. This policy, OICCI argued, regrettably backfired, as consumers swiftly shifted to cheaper illicit options. As a direct consequence, the illicit market’s share surged from 37% to 53%, resulting in a loss of 17 billion sticks from the legal to the illegal segment.
Despite these significant challenges, the legal tobacco industry managed to contribute Rs. 277 billion in taxes in FY2023/24, a notable increase from Rs. 176 billion in the previous year. However, OICCI warns that the sustainability of this revenue is at serious risk. Without urgent relief and a decisive crackdown on the illicit tobacco trade, OICCI cautions that both legitimate businesses and critical government revenues could face long-term harm. The chamber reiterated its call for the government to support the legal tobacco industry through effective enforcement of existing laws and rational taxation policies in the upcoming budget.
