Pakistan’s tobacco industry contributed Rs. 357 billion in taxes during fiscal year 2025-26, as the Federal Board of Revenue (FBR) recorded higher collections despite the continued dominance of illicit and smuggled cigarettes in the domestic market.
According to official data, the FBR collected Rs. 329 billion through Federal Excise Duty (FED) and General Sales Tax (GST) during FY26, an increase of Rs. 45 billion from Rs. 284 billion collected in the previous fiscal year.
When income tax receipts are included, the government’s total tax collection from the tobacco sector reached Rs. 357 billion, compared with Rs. 315 billion in FY2024-25.
Pakistan Tobacco Company Remains Largest Taxpayer
The Pakistan Tobacco Company (PTC) remained the country’s biggest taxpayer in the tobacco sector, contributing Rs. 260.7 billion during FY26, up from Rs. 222 billion a year earlier.
Philip Morris Pakistan ranked as the second-largest contributor, paying approximately Rs. 52.2 billion in taxes during the fiscal year.
The strong performance by the industry’s leading companies helped drive overall growth in tobacco tax revenues despite ongoing challenges from illegal cigarette sales.
Enforcement Measures Boost Revenue
FBR officials attributed the increase in tax collection to stronger enforcement efforts across the tobacco supply chain.
Key measures included:
- Deployment of paramilitary personnel at Green Leaf Threshing Units (GLTUs)
- Improved collection of advance withholding taxes
- Crackdowns on illicit cigarette manufacturing and distribution
- Provincial enforcement against the sale of unstamped cigarette packs
Officials said these initiatives improved compliance and reduced tax evasion in parts of the legal tobacco market.
Illegal Cigarette Trade Continues to Hurt Revenue
Despite improved enforcement, the illegal cigarette market remains a major challenge.
According to official estimates, illicit and smuggled cigarettes account for around 45 percent of Pakistan’s total cigarette market, causing an estimated annual tax revenue loss of Rs. 300 billion.
Authorities also estimate that the value of Pakistan’s illegal cigarette market is approximately Rs. 300 billion, highlighting the scale of tax evasion within the sector.
High Taxes Shifted Consumers Toward Illegal Products
Pakistan’s annual cigarette consumption has remained relatively stable at approximately 81 billion cigarette sticks.
Officials noted that the substantial increase in Federal Excise Duty rates introduced during FY2022-23 significantly raised the retail prices of tax-paid cigarettes.
As prices increased, many consumers shifted toward cheaper illegal and smuggled brands, reducing the market share of legally taxed products.
Although the government has kept FED rates unchanged in recent federal budgets, illegal cigarette sales continue to account for a significant portion of overall consumption.
FBR Targets Higher Tobacco Revenue
The FBR plans to expand enforcement efforts by increasing monitoring at Green Leaf Threshing Units and strengthening cooperation with provincial governments to eliminate the sale of unstamped cigarette packs.
Officials believe these measures could substantially improve tax compliance and increase annual revenue from the tobacco sector to between Rs. 575 billion and Rs. 600 billion over the coming years.
The tax authority says continued action against illicit trade will remain essential to protecting government revenues while promoting a fair and regulated tobacco market.
