ISLAMABAD: Experts have urged the government not to overburden the formal industry and salaried class, which could lead to increased tax evasion.

Addressing the launch of a report titled, Pakistan’s Tobacco Tax Policy Boosts Illicit Trade, Sakib Sherani, former principal adviser to the Ministry of Finance, said that a more balanced, well-enforced tax regime is needed to ensure sustainable revenue generation while minimising market distortions and public health risks.

Mr Sherani said tax policy failure fuels Rs300 billion in revenue loss in the tobacco sector alone.

The report was co-authored by Sakib Sherani and launched by ACT Alliance Pakistan on Wednesday.

Explaining the impact of high taxes on goods produced by the formal sector, Mr Sherani said higher prices have driven consumers toward cheap­­er, tax-evading alternatives, depriving the government of much-needed revenue.

He added that the tobacco tax policy is failing on multiple fronts.

“Not only has it encouraged an expansion in illegal trade, but it has also created severe distortions in the market,” he remarked.

He highlighted that the formal sector, which contributes over 98pc of tax revenue collected from the industry, is shrinking, while illegal operators continue to thrive without accountability.

Pakistan loses close to $100bn annually due to various illegal economic activities. The findings of the report underscored the urgent need for strong policy interventions and enforcement measures to address the rapid expansion of the illegal cigarette trade.

Published in Dawn, March 13th, 2025