Illicit tobacco trade costs Pakistan about $1bn a year, study finds

Pakistan loses roughly $1 billion a year in potential tax revenue to the illicit tobacco trade, with illegal sales estimated at 54 percent of the market, according to a study launched in Islamabad on Wednesday.

The report, "Illicit Tobacco Trade in Asia-Pacific: Taxation, Market Incentives, and Macroeconomic Costs", puts annual revenue losses across the Asia-Pacific economies it covers at $14.85 billion. Pakistan's share places it among the most heavily affected markets examined, Business Recorder reported. The foregone revenue is equal to about 117.4 percent of the tobacco tax Pakistan actually collects.

Figures for FY2025-26 point to a partial shift back to the legal market. Sales of legitimate cigarettes rose from about 36.5 billion sticks to 41.5 billion, a movement of some 5 billion sticks, while tobacco tax receipts increased from about Rs284 billion to Rs329 billion. Business Recorder and The Express Tribune both carried those figures.

Business Recorder reported that 95 percent of the extra tax paid by legitimate manufacturers came from the two established producers, with about 5 percent from other manufacturers. It put the gain at Rs45 billion and said the illicit share is estimated to have fallen from 54 percent to 48 percent over the period.

The report links the improvement to tighter enforcement and legislative changes, including electronic monitoring of green leaf threshing, tracking of tobacco leaving threshing plants, deployment of law enforcement agencies and wider powers for provincial authorities.

Industry data recorded 675 tobacco-related raids in 2026, along with the sealing of 14 factories and seizures of tobacco, cigarette paper, acetate tow and smuggled and duty-not-paid cigarettes. None of the raids has produced a conviction, according to Profit, which led its report on that gap.

"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," PTC senior fiscal engagement manager Mohammad Ranjha said, according to Business Recorder.

PTC called for the enforcement effort to be matched by effective prosecution and timely adjudication, tighter coordination between enforcement agencies, prosecutors and the courts, and deterrent penalties for offenders. Business Recorder reported that industry estimates put about Rs7 billion of potential government revenue in every billion sticks that moves into the legitimate sector.