Illicit cigarette trade in Pakistan is estimated to cause an annual revenue loss of about Rs350 billion. Nearly 45 to 47 billion cigarettes are sold without tax, according to a meeting with Philip Morris International’s Marco Mariotti.
The delegation highlighted that undocumented production and misuse of contracts allow informal players access to raw materials, creating an uneven playing field for the formal sector. Structural issues in the tobacco supply chain include procurement of tobacco leaf, underreporting of production and weak traceability mechanisms.
Participants noted a limited number of actors benefit disproportionately from the undocumented segment while formal businesses face compliance and cost pressures. The issue extends beyond taxation to undocumented income, money laundering and broader economic distortions.
A key theme was the need for stronger enforcement. Laws, tax stamp systems and regulations exist but implementation remains inconsistent, requiring coordinated action by federal and provincial authorities. The Pakistan Tobacco Board’s enforcement capacity is limited, with a need to restructure and strengthen it for better documentation and monitoring.
The meeting also reviewed policy challenges arising from Pakistan’s IMF commitments, including the gradual removal of import restrictions, which may complicate efforts to control key inputs for cigarette manufacturing.