Pakistan loses an estimated Rs. 3.4 trillion in tax revenue annually due to illicit trade, with smuggling and counterfeiting particularly affecting the tobacco, petroleum and pharmaceuticals sectors.
A report by independent think-tank Policy Research Institute of Market Economy (PRIME) and the Transnational Alliance to Combat Illicit Trade (TRACIT) attributes nearly 30 percent of this loss to the misuse of the Afghan Transit Trade facility, highlighting the ongoing challenges in addressing informal trade and its economic impact.
The “Combatting Illicit Trade in Pakistan” report estimates the value of the country’s informal economy at $123 billion. It states that smuggled petroleum, mostly from Iran, alone inflicts tax revenue losses of Rs. 270 billion. It said that since the imposition of hefty taxes on tobacco products, the illicit tobacco trade now accounted for 56% of the market, up from 30% in 2023, suggesting annual losses of more than Rs. 300 billion in tax revenue.
Further, the report highlights risks posed by archaic border control infrastructure and inadequate enforcement mechanisms. It said the customs processes remained inefficient, with limited automation and no risk-based profiling systems, contributing to a growing illicit trade network.
The report notes that Pakistan ranked 101 out of 158 countries on the 2025 Illicit Trade Index, lagging behind regional peers such as India and Sri Lanka. It stresses that systemic weaknesses in governance, enforcement, and policy have allowed illicit markets to thrive, highlighting the need for comprehensive reforms to address these issues. It specifically points to the lack of an effective Track and Trace system, especially in the tobacco sector, for facilitating the rise of an illicit and untaxed market. Additionally, the report states that over 60% of tires sold are smuggled, causing revenue loss of Rs. 106 billion. Around 30% of the market share of tea is taken by smuggling, causing Rs. 10 billion loss.
Amidst ongoing efforts for economic revival, the report states that addressing illicit trade requires a multi-pronged approach, including strengthening enforcement, updating infrastructure, and improving inter-agency coordination to combat smuggling and tax evasion effectively.