ISLAMABAD - Smuggled cigarettes have flooded the Pakistani market to thae extent that one out of four cigarettes brands sold in the country is illegal - either smuggled or local duty-evaded - which constitute for about 25 per cent of the total market, reveal fresh statistics released about the local cigarettes industry.

This means more than one billion duty-evaded cigarettes are sold each month across the country, thus incurring over Rs one billion loss to the national exchequer every month. According to the data, each year billions of illicit cigarettes are sold in Pakistan causing billions of rupees revenue loss to the government.

This hemorrhage of revenues is happening through virtually every shop across the country as cheap illegal cigarettes are easily available everywhere.  One of the key factors to consider in illicit trade of cigarettes is the fiscal cost to the Government.

During the current financial year, the legitimate industry is projected to contribute more than US $ 800 million as excise and sales tax. Massive tax evasion by illicit cigarettes significantly undermines this key source of government revenues.

This widens the fiscal and budgetary gap and keeps Pakistan dependent on foreign aid and loans. In 2011, illicit trade cost the government Rs. 18.5 billion in lost tax revenues.  In the next five years, loss to national tax revenues due to sale of tax-evaded cigarettes is projected to be more than Rs. 100 Billion. Hence, the situation is going to go south in future.

Illicit trade in cigarettes has grown exponentially in recent years, in the last 5 years alone there has been an alarming increase of more than 60% in sale of such cigarettes.  Without a game changing course of action adopted by the authorities to curb this menace, this black market in contraband cigarettes is expected to grow and matters will worsen further in the times to come.  

There are multiple causes of these phenomena. Some of the causes are supply driven and some are demand driven.  Demand of such cigarettes is coming from the continuously increasing prices of duty-paid cigarettes in the country.

Last year alone the prices of cigarettes in Pakistan, according to the official statistics, rose nearly 20%. This price increase is more than the inflation in the country hence causing pressure on consumer pockets. The kind of smuggled brands of course if Pine. This one Korean brand has increased its sale by 300% in the last two years. From being unknown brands just two years ago, it has seen fastest growth in all markets. Pine sells at artificially low price as it is smuggled and no taxes are paid. It is cheaper than all the tax paid cigarettes in Pakistan. It carries no health warning, not even a text health warning.