How Pakistan’s cigarette taxes affect the war on terror
So what has happened? The illicit market — both domestically produced cigarettes that evade taxes and, increasingly, illegally imported cigarettes (from Dubai in particular) — has grown rapidly. It is difficult to estimate the amount, but the illicit market has grown by at least 60% since 2012 and perhaps almost doubled. Illicit trade is bad for legitimate producers, Pakistan’s treasury, and also health. The illicit products are usually far higher in tar and when burnt are more injurious to health.
With terrorist organizations benefiting from the illicit trade in tobacco in the region, the US has a foreign policy interest in helping Pakistan assess the right policies moving forward. It probably makes sense to lower excise duties on tobacco products to help control the illicit trade, and then increase them slowly overtime. Right now the only beneficiaries of current policies are organized crime and terror groups.