Defence Minister Khawaja Muhammad Asif has suggested that reducing taxes on cigarettes could help the government fight illegal cigarette manufacturing and increase tax revenues.
In a message shared on X (formerly Twitter), Khawaja Asif said representatives of the legal tobacco industry had approached him and argued that current cigarette taxes are too high. According to them, lower tax rates would encourage more manufacturers and sellers to operate legally and pay their taxes instead of avoiding them.
The minister said he generally agrees with the view that very high taxes can sometimes encourage illegal business activities. When taxes become too expensive, some manufacturers may choose to avoid paying them by operating illegally or selling smuggled products.
According to Khawaja Asif, despite government efforts and crackdowns on illegal cigarette factories in recent years, unauthorized production continues to grow in different parts of the country.
He claimed that some illegal manufacturers have even moved their operations to unusual locations, including poultry farms and other hidden places, to avoid detection by authorities.
The defence minister said the illegal cigarette trade is causing huge losses to the national economy. He estimated that the government is losing around Rs. 300 billion every year in unpaid taxes due to illegal manufacturing, smuggling, and tax evasion in the tobacco sector.
Khawaja Asif argued that reducing cigarette taxes could make legal cigarette production more competitive. If legal manufacturers face lower tax burdens, the price difference between legal and illegal cigarettes could decrease, making it less attractive for consumers to buy untaxed products.
He also suggested that lower taxes could reduce opportunities for corruption and illegal earnings by dishonest officials involved in the sector.
In addition to discussing cigarette taxes, the minister criticized weaknesses in Pakistan’s tax collection and enforcement system. He said that improving tax administration and ensuring better implementation of existing laws could significantly increase government revenues.
Supporters of lower tobacco taxes believe that reducing tax rates could encourage more businesses to operate legally, expand the documented economy, and increase overall tax collection. However, others argue that higher tobacco taxes are important for discouraging smoking and protecting public health.
While Khawaja Asif has expressed support for reviewing cigarette tax rates, no final decision has been made. Any changes to tobacco taxation will be considered by the government during the preparation of the Federal Budget 2026-27.
The final decision on whether cigarette taxes will be reduced, increased, or kept unchanged will be announced as part of the upcoming federal budget.
