Defence Minister Khawaja Muhammad Asif has proposed that lowering cigarette taxes could help reduce the size of Pakistan’s illegal tobacco market while potentially boosting government revenue, as the federal budget for FY2026–27 is being finalised.

In a post on X, he said representatives of the legal tobacco industry argued that high tax rates are encouraging tax evasion and pushing consumers toward illicit cigarette brands. According to him, a reduction in taxes could improve compliance and make legally produced cigarettes more competitive.

The minister stated he agrees with the broader argument that overly high taxation can expand black markets. He noted that despite repeated enforcement actions, illegal cigarette manufacturing continues across multiple provinces. He also alleged that some illicit producers have shifted operations to unusual hiding places, including poultry farms, to avoid detection.

As per his estimate, Pakistan loses around Rs. 300 billion annually due to tax evasion in the cigarette sector alone. He argued that lowering tax rates could shrink the illegal segment and improve overall revenue collection by bringing more production into the formal economy.

He further criticised weaknesses in tax enforcement and administration, saying improved compliance mechanisms could significantly strengthen public finances and reduce reliance on external borrowing.

The remarks come at a time when tobacco taxation is under active review during budget preparations, where policymakers are weighing revenue needs against public health concerns and efforts to curb smuggling and illicit production. Any change in cigarette taxes will be decided as part of the final federal budget.