Pakistan is suffering an estimated annual revenue loss of approximately USD 1 billion due to the illicit tobacco trade, according to a report titled “Illicit Tobacco Trade in Asia-Pacific: Taxation, Market Incentives, and Macroeconomic Costs.” The study, released on Wednesday, places Pakistan among the most significantly impacted markets examined, noting that the illicit trade results in USD 14.85 billion in annual revenue losses across the economies covered by the study.
In Pakistan, the report estimates an illicit market share of 54 percent. This trade results in foregone revenue equivalent to approximately 117.4 percent of the tobacco tax actually collected.
However, recent fiscal outcomes for FY2025–26 offer some grounds for cautious optimism. The legitimate cigarette market grew from approximately 36.5 billion to 41.5 billion sticks, which represents an estimated 5 billion-stick shift toward the legal market. During this same period, tax revenues increased from approximately Rs 284 billion to Rs 329 billion.
According to the Business Recorder, 95 percent of the additional tax contribution from legitimate manufacturers came from the two established legitimate manufacturers, with the remaining approximately 5 percent coming from other manufacturers. This resulted in an increase of Rs 45 billion, while the illicit share is estimated to have declined from 54 percent to 48 percent.
Industry estimates suggest that every billion sticks moving into the legitimate sector represents approximately Rs 7 billion in potential government revenue.
The Business Recorder reports that these improvements coincided with stronger enforcement and legislative interventions by the Government of Pakistan during 2025–26. These measures include electronic monitoring of green leaf threshing, increased monitoring of tobacco movement from GLT facilities, the deployment of law-enforcement agencies, and enhanced powers for provincial authorities to act against illicit cigarettes.
Enforcement actions have led to the sealing of 14 factories and the confiscation of tobacco, cigarette paper, acetate tow, and smuggled or duty-not-paid cigarettes. Industry data recorded 675 tobacco-related raids in 2026.
Despite these actions, the Business Recorder notes a critical gap: none of these actions have resulted in convictions. Mohammad Ranjha, Senior Fiscal Engagement Manager at PTC, stated, “The progress achieved demonstrates what coordinated action against illicit tobacco can deliver. The next critical step is to ensure that successful raids translate into effective prosecutions and timely legal outcomes.”
The PTC called for the government to match its enforcement momentum with effective prosecution and timely adjudication. They suggested that strengthening coordination between enforcement agencies, prosecution authorities, and the judicial system, along with deterrent penalties, is necessary to protect government revenue and safeguard legitimate businesses.
