Aftab Anwar Baloch
Over the past few days, the tobacco industry has launched an extensive media campaign, making exaggerated claims about the illegal cigarette trade and advocating for tax reductions. This campaign has been widely publicized, attempting to paint a picture of rampant illicit trade in the cigarette market, allegedly causing significant revenue losses to the government. However, the data and methodologies used to support these claims appear to be misleading, creating an inflated perception of the extent of the problem.
As reported in various newspapers, the Institute for Public Opinion Research (IPOR), based on a survey of retailers, claimed that 54% of cigarette brands sold in Pakistan were illicit. According to the report, this alleged illicit trade resulted in an annual loss of around Rs 300 billion in taxes and duties. However, a closer examination of the survey methodology and the way its results have been reported raises serious concerns about its accuracy and objectivity. The figure of 54% was determined by assessing the number of brands found non-compliant with tax stamp regulations and graphic health warnings. This estimate is misleading since the survey focused on the availability of various cigarette brands instead of the consumption of cigarette brands. More importantly, the survey does not take into account the market share of these brands, which is crucial in determining the true extent of tax evasion and illicit trade in the cigarette industry. A brand that is available in the market but has a negligible share in actual consumption cannot be considered a significant contributor to illicit trade.
On the other hand, a rigorous research study conducted by the Social Policy and Development Centre (SPDC) in 2024 provides a more accurate and representative analysis of the cigarette market in Pakistan. The SPDC study was based on a nationally representative survey of over 5,000 smokers, offering a more reliable estimate of cigarette consumption patterns. According to this study, the Pakistani cigarette market is highly concentrated, with the top 15 brands—13 of which are registered with the Federal Board of Revenue (FBR)—constituting 80% of the total market. This finding underscores the importance of considering market shares when estimating the extent of illicit trade.
The SPDC study further reveals that illicit (non-tax-paid) trade is primarily driven by locally manufactured cigarettes, which account for 21.3% of the market. Additionally, smuggled cigarettes contribute to 11.9% of total cigarette consumption. These figures indicate that while illicit trade is a concern, it is significantly lower than the exaggerated claims made by the tobacco industry.
Moreover, the estimated revenue loss of Rs 300 billion is also highly overstated, given that the total revenue from cigarettes, including the Federal Excise Duty (FED) and General Sales Tax (GST) for the fiscal year 2023-24, was Rs 298 billion.
Additionally, the SPDC study indicates that the Pakistani cigarette market is dominated by economy brands, which make up a substantial 93.4% of total consumption. This trend suggests that price-sensitive consumers primarily purchase lower-priced brands, further reinforcing the need for a careful and evidence-based approach when evaluating tax policies and illicit trade claims.
Given these findings, it is evident that the tobacco industry’s exaggerated claims about illicit trade are part of a broader strategy to push for lower taxes. The government and policymakers must critically assess the data presented by industry stakeholders and rely on independent, well-conducted research studies to inform their decisions. Misleading narratives should not dictate public policy, especially when they are designed to serve corporate interests at the expense of public health and fiscal stability. Instead of succumbing to industry pressure, efforts should focus on strengthening tax enforcement mechanisms and ensuring that regulations are effectively implemented to curb genuine instances of illicit trade without compromising public revenue and health objectives.
The writer is Customs, Tariff and Trade Expert.
