Pakistan loses an estimated $1 billion in government revenue every year due to the illegal tobacco trade. Illegal Cigarettes account for approximately 54 percent of the country’s cigarette market, according to a regional report.

The report, titled Illicit Tobacco Trade in Asia-Pacific: Taxation, Market Incentives, and Macroeconomic Costs, examines the financial impact of illegal tobacco activities. It estimates that the countries covered lose $14.85 billion in annual tax revenue.

Pakistan remains among the most affected markets in the region. Its estimated revenue losses equal approximately 117.4 percent of the tobacco taxes collected by the government.

Legal Cigarette Market Expands by 5 Billion Sticks

Pakistan’s legal cigarette market recorded significant growth during FY2025-26. Sales increased from approximately 36.5 billion sticks to 41.5 billion sticks.

This represents an increase of around 5 billion sticks sold through tax-paying manufacturers. The development also contributed to higher government revenue.

According to media reports, tobacco tax collection increased from approximately Rs. 284 billion to Rs. 329 billion. This generated an additional Rs. 45 billion in government revenue.

Meanwhile, the estimated share of illegal cigarettes declined from 54 percent to 48 percent. This indicates a shift toward the formal tobacco market.

Industry estimates suggest established legal manufacturers generated approximately 95 percent of the additional tax revenue. Other manufacturers contributed the remaining 5 percent.

The industry estimates that shifting every 1 billion cigarette sticks into the legal market could generate Rs. 7 billion in additional government revenue.

Government Strengthens Action Against Illegal Tobacco

The growth in legal sales coincided with stronger government action against illegal tobacco activities. Authorities introduced several enforcement and monitoring measures during FY2025-26.

These measures included electronic monitoring of green leaf threshing facilities. Authorities also increased surveillance of tobacco transportation from these facilities.

Law enforcement agencies were deployed to support operations against illegal tobacco activities. Provincial authorities also received expanded powers to address unlawful cigarette sales.

Enforcement operations resulted in the seizure of large quantities of tobacco and related materials. These included cigarette paper, acetate tow, smuggled cigarettes, and products without paid duties.

Authorities also sealed 14 factories during their operations.

Industry data recorded 675 tobacco-related raids in 2026. However, the industry reported that none of these operations had resulted in convictions.

This highlights a gap between enforcement activities and successful legal proceedings.

Tobacco Industry Seeks Stronger Prosecution Measures

Mohammad Ranjha, Senior Fiscal Engagement Manager at Pakistan Tobacco Company (PTC), welcomed the recent progress.

He said coordinated government action could significantly reduce illegal tobacco activities. However, he stressed the importance of converting successful raids into effective prosecutions.

PTC also praised the government’s enforcement efforts. The company called for better coordination between law enforcement agencies, prosecution authorities, and the judicial system.

It further recommended introducing stronger penalties for offenders. These measures could help protect public revenue and businesses operating within the legal framework.

With approximately $1 billion in annual government revenue at stake, the industry wants consistent enforcement. It also called for predictable fiscal policies to discourage illegal trade.

In other related nnews also read China Expresses Concern Over Pakistan-Afghanistan Tensions

The industry believes these steps could improve tax collection and support legitimate manufacturers. They could also create a fairer competitive environment for businesses complying with government regulations.