LAHORE: Illicit cigarette brands account for a significant portion of the market, and the tax discrepancy caused by tax evasion allows them to profit while the legitimate industry suffers.

The illegal market share of cigarettes is expected to rise to 50 percent due to increased taxes. The current data suggests that increasing tobacco taxes may not effectively reduce tobacco consumption in Pakistan due to the affordability of cigarettes in the country.

Compared to other South Asian and WHO Eastern Mediterranean Region countries, Pakistan has one of the lowest affordability rates for cigarettes, which has declined significantly over the past three years. Despite being one of the nations with the fourth-least affordable smokes, Pakistan still has the third-least affordable cigarette market among the six South Asian nations.

Moreover, Pakistan’s affordability of cigarettes has worsened considerably compared to other countries in the region between 2020-23. These figures challenge the claims of anti-tobacco organisations that raising taxes can reduce smoking rates in Pakistan, as increasing the tax rate on tobacco may exacerbate the issue of affordability and promote illicit trade.

To address this issue, policymakers and the government should focus on controlling the illicit tobacco trade rather than increasing taxes on the legal tobacco industry, said Osama Siddiqui, a macroeconomic analyst. He said the recent hike in the Federal Excise Duty (FED) and inflation has decreased the purchasing power of residents, making them more vulnerable to purchasing cheaper cigarettes that are not duty-paid.

Osama said that growth of the illicit tobacco market not only harms public health but also deprives the government of crucial tax revenue, estimated to be over Rs 80 billion each year. Stopping the illegal tobacco trade and bringing it under tax net is necessary to collect taxes properly and allocate resources for societal development, he added.

Copyright Business Recorder, 2023