Rs325 billion lost to tax evasion in Pakistan’s cigarette industry

A staggering Rs325 billion in annual tax evasion has been revealed in Pakistan’s cigarette industry, according to a pre-budget media briefing held by Pakistan Tobacco Company (PTC).

During the session, Asad Shah, Director Legal & External Affairs at PTC, stated that the illegal cigarette industry has now taken the lead in market share, occupying around 58% of the market.

He explained that Pakistan’s total annual cigarette consumption is approximately 82 billion sticks, out of which only 34 billion sticks fall within the tax net while the remaining 46 billion go untaxed.

A legally sold Tier-1 cigarette pack costs Rs483 with the government collecting Rs409 in taxes from it. Despite legal cigarettes holding only a 42% share of the market, they contribute 98% of the sector’s tax revenue.

Asad Shah further revealed that the cigarette sector has the potential to generate Rs570 billion in taxes.

In fiscal year 2023–24, a total of Rs292 billion in taxes was collected from the cigarette industry. However, in the first 11 months of the current fiscal year, only Rs223 billion has been collected. This means that Rs50 billion in expected taxes may not be recovered in the final month.

He claimed that groups involved in tax evasion are collaborating with certain NGOs and pursuing a common agenda. Twelve years ago, the government collected taxes on 67 billion cigarette sticks but currently, it collects taxes on only 34 billion sticks.

The briefing also highlighted that the minimum legal price for a pack of cigarettes is Rs162.75 while smuggled and counterfeit cigarettes are available in the market at lower prices.