Pakistan tops global illicit cigarette market: BAT report

British American Tobacco said Pakistan has the world’s largest illicit cigarette market, with 55% share. High taxes widened price gaps, boosting illegal trade while failing to cut consumption or significantly increase government revenue, reports suggest

New Delhi: Pakistan has the biggest market of illicit cigarettes in the world, according to Simon Trussler, British American Tobacco (BAT) Group’s Head of International Trade and Fiscal Affairs.

He said that the share of illicit cigarettes in Pakistan has reached 55 per cent, reflecting that Pakistan is a leading country where domestic taxes are evaded to such an extent, reports Business Recorder.

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The Federal Board of Revenue (FBR) fully understands the problem and is trying to resolve the issue, but the problem is still very big, he added.

A latest report by Oxford Economics shows that Pakistan’s cigarette fiscal policy has not achieved its intended policy objectives – either from a tax revenue perspective, or in terms of reducing overall cigarette consumption, the report mentioned.

Trussler said higher cigarette taxes have not been successful in reducing the total number of cigarettes consumed in Pakistan.

According to him, overall cigarette consumption has remained broadly flat at 80 billion sticks (since 2012), while the market has tilted sharply toward illicit brands after large tax hikes.

The massive increase in illicit cigarettes has been driven by a combination of demand- and supply-side factors, he mentioned.

Trussler further said that the company has strongly proposed the government to avoid increase in Federal Excise Duty (FED) on cigarettes in budget (2026-27) as consumers are unable to aboard excise shocks.

The rapid increase in the consumption of illicit cigarettes has been, in large part, the consequence of a sudden deterioration in the affordability of legal, tax-paid, brands.

He said the tax hikes resulted in a widening price gap between legal and illicit cigarettes. More than 80 percent of cigarette price increases in Pakistan have been attributable to tax hikes.

The WHO data show that in 2024, the pre-tax price of cigarettes was the 173rd lowest in the world and less than 20 per cent of the global average.

This creates a substantial incentive for domestic manufacturers to operate illicitly, evading local taxes and earning a higher margin, said the report.