Pakistan is experiencing a significant economic challenge as Pakistan’s illegal cigarette market the world’s largest market for illegal cigarettes, with over half of its cigarette consumption now illegal. This issue is costing the nation between Rs247 billion and Rs350 billion annually in lost tax revenue, according to a recent economic assessment shared in The Express Tribune Podcast.
Experts from Oxford Economics and the British American Tobacco Group (BAT) have highlighted that steep tax increases, weak enforcement, and structural market distortions have contributed to this growing illegal tobacco economy. Andrew Logan, an economist at Oxford Economics, noted that 43.5 billion cigarettes sold in the 2024-25 period were illegal, driven by affordability issues following a more than 200% increase in excise duties in 2022-23.
Illegal cigarettes are reportedly 64% cheaper than their legal counterparts, incentivizing consumers, especially low-income households, to purchase untaxed products. Logan emphasized that this is fundamentally a demand and supply issue, with excessive taxation making legal cigarettes unaffordable while encouraging illegal supply chains.
On the supply side, low profitability in the legal cigarette industry, weak implementation of track-and-trace systems, and regulatory gaps are key drivers of illegal trade. Only 22 out of 477 cigarette brands in Pakistan meet full legal compliance, according to Logan.
Simon Trussler, Group Head of Fiscal Affairs and International Trade at BAT, pointed out that Pakistan’s cigarette tax revenues, when adjusted for inflation, are around 20% lower than they were a decade ago, despite higher tax rates. He cautioned that sharp tax increases do not necessarily translate into higher revenue or lower consumption, citing examples from Brazil and the UK.
Total cigarette consumption in Pakistan remains stable at approximately 80 billion sticks annually, with a shift from legal to illegal markets. Logan further explained that Pakistan’s complex regulatory environment, involving excise duties, minimum pricing, and track-and-trace systems, suffers from uneven enforcement, allowing illegal trade to thrive.
Trussler and Logan agreed that enforcement alone cannot resolve the issue. They urged policymakers to adopt a predictable taxation framework and strengthen existing systems, aligning with international best practices. Reducing illegal trade could potentially attract foreign investment, expand legitimate industry activity, and diminish organized crime linked to smuggling networks.
Looking forward, maintaining a stable excise regime could gradually shift consumption back into the legal market, recovering significant lost revenue for the government. Trussler expressed cautious optimism about Pakistan’s ability to address the issue, noting that the concentration of illegal production within the country makes the problem more manageable if consistent policies are maintained.
Published in SouthAsianDesk, May 11, 2026
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