ISLAMABAD, April 14, 2026 — Pakistan’s government estimates it is losing between Rs137 billion and Rs200 billion annually due to illegal cigarette trade, as authorities intensify efforts to curb tax evasion and dismantle underground manufacturing networks, a minister said on Tuesday.
Minister of State for Finance and Revenue Bilal Azhar Kayani said the illicit tobacco sector accounts for more than 25% of total cigarette consumption in the country, equivalent to around 20 billion sticks that escape taxation each year.
Speaking at the launch of a review report on Pakistan’s illegal tobacco economy organised by Oxford Economics, Kayani said the problem is largely driven by domestic tax evasion and undocumented production, although smuggling of finished goods and raw materials also contributes significantly.
He said the government had stepped up enforcement measures during 2025, including the rollout of a national Track and Trace System and coordinated raids against illegal factories, distributors and retailers. These operations led to the dismantling of several criminal networks involved in the illicit trade.
However, the minister warned that enforcement actions have pushed some operators to adapt by relocating production to smaller and more concealed sites, including residential properties and agricultural areas, making detection more difficult.
Kayani said Prime Minister Shehbaz Sharif is directly monitoring anti-smuggling efforts and has directed authorities to strengthen coordination across enforcement agencies.
Officials said illicit cigarette production not only undermines government revenue but also distorts competition, harming legitimate manufacturers who comply with tax laws and regulatory requirements.
The minister stressed that continued enforcement, alongside improved monitoring systems and regulatory reforms, is essential to reducing the scale of the illegal trade.
He added that protecting tax revenue and ensuring a level playing field for compliant businesses is critical for maintaining investor confidence and supporting broader economic stability.
Economists say Pakistan’s tobacco sector remains highly sensitive to taxation policy, enforcement intensity and price differentials between legal and illegal products, all of which influence consumption patterns.
The government has pledged to further expand digital tracking systems and enhance inter-agency coordination to curb revenue losses and formalise the tobacco supply chain.