Pakistan loses an estimated $1 billion in government revenue every year because of illegal tobacco sales, with illicit cigarettes accounting for more than half of the country’s cigarette market, according to a new report.
The report, titled Illicit Tobacco Trade in Asia-Pacific: Taxation, Market Incentives, and Macroeconomic Costs, estimates that illegal tobacco trade costs Pakistan approximately 117.4 percent of the tax revenue collected from the sector.
Across the Asia-Pacific economies covered by the study, illicit tobacco trade results in an estimated $14.85 billion in lost tax revenue annually.
Legal Cigarette Sales Increase by 5 Billion Sticks
Pakistan’s legal cigarette market expanded from around 36.5 billion sticks to 41.5 billion sticks in FY2025-26, an increase of approximately 5 billion sticks.
According to industry figures, tobacco tax collection also increased from Rs. 284 billion to Rs. 329 billion during the same period, adding Rs. 45 billion to government revenue.
The estimated share of illegal cigarettes in the market declined from 54 percent to 48 percent.
Industry estimates suggest that established legal manufacturers contributed around 95 percent of the additional tax revenue, while other manufacturers accounted for the remaining 5 percent.
The industry estimates that shifting every additional 1 billion cigarette sticks into the legal market could generate approximately Rs. 7 billion in government revenue.
Authorities Seal 14 Illegal Cigarette Factories
The improvement in legal sales and tax collection coincided with increased enforcement during FY2025-26.
Measures included electronic monitoring of tobacco processing facilities, closer checks on tobacco transportation and the involvement of law enforcement agencies in operations against illegal cigarette sales.
Authorities have seized tobacco, cigarette paper, acetate tow, smuggled cigarettes and products on which applicable duties were not paid. They have also sealed 14 factories.
Industry data recorded 675 tobacco-related raids in 2026. However, the industry said these operations had not resulted in any convictions, pointing to gaps between enforcement actions and successful prosecutions.
Tobacco Company Seeks Stronger Legal Action
Mohammad Ranjha, Senior Fiscal Engagement Manager at Pakistan Tobacco Company (PTC), said coordinated enforcement had helped improve the situation but stressed that raids needed to lead to successful prosecutions.
He called for better coordination between law enforcement agencies, prosecutors and courts, along with stronger penalties for those involved in illegal tobacco sales.
The industry has also called for consistent enforcement and predictable tax policies to discourage illegal trade and protect government revenue.
