Illicit tobacco trade to cause $1b revenue loss

Study estimates 54% illegal market share in Pakistan

ISLAMABAD:

Illicit tobacco trade continues to impose a significant fiscal burden across Asia-Pacific, depriving governments of billions of dollars in potential revenue and weakening legitimate, tax-paying markets.

According to the report "Illicit Tobacco Trade in Asia-Pacific: Taxation, Market Incentives, and Macroeconomic Costs," the illicit tobacco trade is estimated to result in $14.85 billion in annual revenue losses across the economies covered by the study. Pakistan alone accounts for approximately $1 billion in estimated annual fiscal leakage, placing the country among the most significantly impacted markets examined.

In Pakistan, the study estimates an illicit market share of 54%, with foregone revenue equivalent to 117.4% of tobacco tax collected. Recent fiscal outcomes, however, provide grounds for cautious optimism. In FY2025-26, the legitimate cigarette market increased from 36.5 billion to 41.5 billion sticks, representing an estimated 5-billion-stick shift towards the legal market. As per media reports, over the same period, tax revenues increased from Rs284 billion to Rs329 billion.

The improvement in legal volumes, tax revenue and the reduction in illicit market share coincided with stronger enforcement and legislative interventions. Based on industry estimates, every billion sticks moving into the legitimate sector represent around Rs7 billion in potential government revenue.