April 2026: Pakistan Tops Global Illicit Cigarette Market
Pakistan has emerged as the world’s largest illicit cigarette market, with illegal products accounting for 55% of total consumption – around 44 billion sticks annually. A roughly 80 billion-stick market has remained largely unchanged for over a decade. Repeated tax increases have failed to reduce overall cigarette consumption, instead accelerated a structural shift from legal to untaxed products. The widening price gap between tax-paid and illicit cigarettes has been a key driver of this trend, undermining both public revenue and regulatory objectives.
Against this backdrop, the market ledear, British American Tobacco (BAT) has urged the government not to increase the Federal Excise Duty (FED) on cigarettes in the 2026-27 budget, arguing that consumers are no longer able to absorb further excise shocks. The company maintains that additional tax hikes risk further expanding the illicit segment rather than curbing demand.
Overall, the data points to a market where total demand remains stable but increasingly shifts outside the formal, tax-paying system, raising concerns over fiscal sustainability and policy effectiveness.
December 2025: Philip Morris begins the local production of ZYN nicotine pouches
Philip Morris International (PMI) began the production of ZYN nicotine pouches at its Sahiwal facility. British American Tobacco (BAT) introduced the nicotine pouch category in Pakistan by launching VELO in 2019 and established a sizeable & fast-growing consumer base for modern oral nicotine products – turning Pakistan into a Top-5 market globally in terms of volume.
With a population of 255 million, Pakistan remains among the world’s major tobacco-consuming countries: c.19.5% of adults (c.31 million people) use tobacco in some form, with as many as 32% of males are reportedly current users. Meanwhile, traditional oral tobacco products such as paan, naswar, and gutka continue to account for a significant portion of consumption, especially among lower-income groups. Considering that nicotine pouches are banned in India, Pakistan has the world’s largest potential consumer base for oral nicotine pouches due to adult tobacco users searching for alternatives to traditional oral tobacco products.
August 2025: Mandatory standards for nicotine oral products will be fast-tracked to facilitate exports
Ministry of Science and Technology (MoST) and the Pakistan Standards and Quality Control Authority (PSQCA) will fast-track the inclusion of nicotine-containing tobacco-free oral products in the mandatory list of standards. The move aims to facilitate exports worth more than $100 million and curb the spread of illicit, smuggled, and substandard products in the domestic market.
The Pakistan Standard PS: 5468 was first drafted and approved in 2020 during the COVID-19 pandemic. It prescribes ingredient disclosures, nicotine limits of up to 20 mg per pouch, labeling guidelines, and child safety warnings. The standard was designed to bring local production in line with international benchmarks while protecting consumers from health risks associated with unregulated nicotine pouches. In October 2024, British American Tobacco (BAT)’s subsidiary, Pakistan Tobacco Company (PTC), formally requested conversion of the voluntary standard into a mandatory one, citing a $40 million local investment and warning that without enforcement, Pakistan risked becoming a breeding ground for substandard and illicit products. In June 2025, the National Standards Committee formally recommended making the standard mandatory; however, the National Health Services Ministry (NHSRC) subsequently issued some objections.
February 2025: %58 of cigarettes sold in Pakistan are illegal
Following the 200% excise duty increase in the 2022/23 govermental budget, smokers continue to shift from expensive, taxed cigarettes to cheaper, illicit alternatives. The cigarette-market leader with 80.1% share, British American Tobacco (BAT) estimates that 46 billion of the 79 billion sticks sold in Pakistan were untaxed and illicit in 2024. With 58% of the market being illicit, legal sales fell by -8.3% from 36 billion sticks to 33 billion sticks in 2024. BAT states that, as a result of the contraction in the legal sales, the government revenue from legal manufacturers is projected to decline by -12% to Rs277 billion (US$980 million)1. Seperately, BAT announced that it exited the Pakistan vape market subsequent to the 25 folds increase in vape duties requiring a price hike of at least 30 folds to break even.
Background information
Pakistan is the world’s fifth-most populous country with a 240Mn population. With an average age of 21 years and 2% annual population growth, Pakistan is an important growth market for the tobacco majors. However, in H1 2023 earnings release, BAT underlined significant excise increases in Pakistan as one of the main drivers of Group’s global cigarette volume decline (5.8% year-on-year basis).
Pakistan Tobacco Company (PTC), a subsidiary of BAT, estimates that the share of illicit cigarettes will reach 51.4Bn sticks (i.e. 63% of the 81Bn sticks consumed in total) in Pakistan in the current fiscal year2. Since the increase of Federal Excise Duty (FED) on cigarettes by more than 200% in FY22/23 (including an an unprecedented 150% excise hike in Feb 2023), consumers are increasingly downtrading to tax-evaded (locally manufactured) and smuggled cigarettes. The minimum tax (FED & Sales Tax) is PKR127.4/pack ($0.455/pack), but non-tax-paid cigarettes are reportedly being sold at an average price of PKR100/pack – resulting in a price gap of 200% compared to most tax-paid brands.
PTC stated that
– volumes of the tax-paid cigarettes have reduced by more than 55% in the half of 2023, raising concerns of business sustainability for major tobacco companies
– for the first time in Pakistan’s history, tax loss due to the illicit trade will surpass the total tax paid in FY23/24.
In the first nine months of 2023, Philip Morris Pakistan Limited (PMPL) reported -24% revenue and -44% volume decline3. PMPL estimates that tax-paid volumes have decreased by -38% in the same period and by -55% between March and June 2023 (- note the difference versus the PTC estimates).
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