Popular ‘illegal’ cigarette brands costing govt Rs300 billion a year: report

An Institute for Public Opinion Research (IPOR) study has revealed that a staggering 54 percent of cigarettes brands in the country were operating illegally, resulting in the national exchequer failing to realize approximately Rs300 billion in taxes and duties per annum.

The IPOR study revealed that of the 413 cigarette companies in Pakistan, just 19 of them were “fully compliant” with the rules and regulations of the Track and Trace System (TTS) while only 13 cigarette brands held the partially compliant status.

Cigarette companies are mandated by the law to display Graphical Health Warnings (GHW) on their packaging, however, a staggering 95 brands failed to feature such warnings. Moreover, cigarette packaging from 286 companies does not possess either the tax stamp or the GHW showing their blatant disregard for the law.

GHW are usually considered to lower cigarette demand and consumption that spells bad news for vendors. The fall in demand stems from the warnings on the packaging making cigarette consumption less appealing -- since they clearly report the risks associated with smoking.

An executive director at IPOR outlined how the survey studied cigarette sales at over 1,500 points of sale (POS) in 19 districts. TTS was introduced in 2021 as a measure to crackdown against the illegal cigarette trade. However, the measure has proven to be largely ineffective.

More concerningly, the situation has deteriorated in the absence of any meaningful law enforcement action against non-compliers. As of 2009, all cigarette packaging was supposed to prominently display GHW’s, but cigarette companies continue to supply their cigarettes in packaging that does not comply with these regulations.

In the local market, many continue to buy ‘khullay’ cigarettes nullifying the effect of warning labels. Moreover, it is tough to regulate such sales especially in a cash-based economy allowing vendors to get away with tax evasion.

These companies are cheating the national exchequer out of funds that it could have received. A whopping 332 companies were found to be in violation of the legal minimum price of cigarettes (Rs162.25 per packet) often selling packs for a measly Rs40 per pack. This results in large revenue losses for cash-strapped Pakistan.

Non-compliance is much worse in rural localities as opposed to urban ones. Furthermore, it is tough to crackdown on the sale of cigarettes that are smuggled in, leaving tax authorities with little information on where their efforts should be focused first.