Pakistan has launched a coordinated federal and provincial crackdown on the country’s booming illicit cigarette trade after a new report warned that illegal products now make up more than half of the tobacco market.

According to an Oxford Economics study titled An Economic Assessment of the Illicit Cigarette Market in Pakistan, the scale of the underground trade has reached 43.5 billion cigarette sticks annually. With total consumption hovering around 80 billion sticks, untaxed brands have steadily displaced legal sales and now account for a dominant share of the market.

Minister of State for Finance Bilal Azhar Kayani said at the report’s launch that enforcement action has already begun across the country. He said authorities, working with provincial governments, have shut down multiple illegal manufacturing units and are continuing raids against retailers involved in selling untaxed cigarettes.

The report highlights a sharp rise in excise duties between early 2022 and mid-2023, which increased by 107 percent in real terms. This widened the price gap between legal and illegal products, making illicit brands roughly 36 percent cheaper on average and pushing consumers toward the underground market.

It further notes that around 64 percent of illegal cigarettes are produced domestically, largely in Azad Jammu and Kashmir and Khyber Pakhtunkhwa, while the remaining 36 percent enters through smuggling networks, including routes linked to Afghanistan. Some of the illicit supply is associated with foreign-origin brands allegedly coming via the UAE and South Korea.

The study estimates that Pakistan is losing between Rs. 274 billion and Rs. 343 billion annually due to tax evasion in the cigarette sector—an amount that could exceed total excise revenue collected from legitimate sales.

Officials say the ongoing crackdown will target illegal production units, smuggling routes, retail distribution networks, and enforcement of the track-and-trace system to curb tax evasion and restore control over the sector.