Tobacco Tax Hike Could Boost Illicit Trade, Warns Leader

Islamabad: Muhammad Amin Virk, Chairman of Fair Trade in Tobacco, has expressed serious concerns over recent reports suggesting the government plans to hike excise taxes on tobacco products. During a media talk in Islamabad, Virk warned that such measures could severely harm tax-compliant legal tobacco companies and unintentionally fuel the growth of illicit tobacco trade in the country.

Virk emphasized that the government’s focus should shift toward tackling illegal tobacco manufacturers, particularly those operating in Khyber Pakhtunkhwa and Kashmir, rather than further burdening the already tax-compliant legal sector. “These illicit entities control 63% of the market but contributed a meager Rs. 5 billion in taxes during FY2023-24. This blatant tax evasion undermines the national economy,” he stated.

Refuting claims from foreign-funded think tanks that raising excise taxes reduces smoking rates, Virk argued that such policies have the opposite effect. “Higher taxes on legal brands drive consumers towards cheaper, illicitly traded cigarettes that flout all laws and are sold below the Minimum Legal Price (MLP),” he pointed out. “These brands dominate the market, bypassing both federal and provincial health and commercial regulations.”

Virk also revealed disturbing statistics, saying that out of nearly 300 local tobacco brands, only 15 adhere to the Track and Trace System (TTS) and pay taxes. The rest, including smuggled and illicitly produced brands, evade regulations, including taxation, pricing, and public health laws, putting significant strain on the country’s economy.

Virk urged the government to prioritize enforcing the existing tax regime and hold tax evaders accountable. He also advocated for the universal implementation of the Track and Trace System, which he believes could significantly enhance revenue collection from the tobacco sector. “By enforcing the TTS across all tobacco manufacturers, Pakistan could potentially increase its annual tax collection from Rs. 300 billion to Rs. 700 billion,” Virk added.

Highlighting the importance of the tobacco industry to Pakistan’s agriculture, Virk reminded that the legal tobacco sector supports thousands of farmers and workers. “Last year, the legal tobacco sector contributed nearly Rs. 300 billion in taxes. Imagine how much more could be generated if all manufacturers paid their fair share.”

Read More: KP Government Withdraws Tobacco Tax Hike Amid Political Pressure

In his conclusion, Virk called for a rationalized excise tax policy that ensures fair implementation across the sector, without overburdening legal businesses. He warned that without effective regulation, the illicit tobacco market would continue to grow, undermining Pakistan’s fiscal health and agricultural economy.

Virk’s remarks underscored the urgent need for reforms in the tobacco sector, emphasizing that a balanced approach could curb illegal activities, promote fair trade, and enhance economic stability. He appealed to the government to act decisively to protect Pakistan’s fiscal and agricultural landscape.