Pakistan is working hard to stabilize its economy and attract higher levels of foreign direct investment. At the same time, the state is confronting a large illegal cigarette mafia that drains hundreds of billions of rupees from the tax system every year. The way the government deals with this mafia is not only a fiscal issue but also a signal to global investors about whether Pakistan can protect the rule of law and a level playing field in its key sectors.
1. A Hidden Drain on Pakistan’s Finances
Recent official testimony has made the scale of the problem much more evident. In May 2025, the Chairman of the Federal Board of Revenue (FBR) informed the National Assembly’s Standing Committee on Finance that tax evasion in the tobacco and poultry sectors together has reached nearly Rs 400 billion annually, and that roughly Rs 300 billion of that loss is in the tobacco sector alone.
At the same time, a formal FBR press release carried by the Associated Press of Pakistan (APP) describes illicit cigarette trade and unlawful manufacturing as causing a revenue loss of about Rs 250–300 billion per year. Independent research and advocacy platforms have been citing similar numbers for several years, arguing that the illegal cigarette market has reached well over one-third of total consumption and continues to grow.
The practical effect is straightforward. Every illegal, non–tax-paid pack that enters the market undercuts law-abiding manufacturers, shifts sales out of the documented economy, and deprives the exchequer of revenue that could support debt reduction, infrastructure, and social spending. From the perspective of investors, this distorts the entire formal market.
2. What the Legal Cigarette Industry Already Pays
While illegal operators evade most obligations, the legal cigarette industry is already one of Pakistan’s highest tax-paying sectors. According to recent FBR data reported by Mettis Link News, the government collected Rs 237 billion in Federal Excise Duty (FED) from cigarettes in FY 2023-24, an increase of about 67 percent over the previous year. Sales tax on domestic cigarette sales added another Rs 60.7 billion.
This means the compliant segment of the industry contributed close to Rs 300 billion in cigarette-related taxes in a single year. Earlier reporting, including analyses by Dawn and the business press, showed that two multinational firms accounted for roughly 98 percent of tobacco taxes. In contrast, dozens of local companies with around 40 percent of the market share accounted for only about 2 percent of total tobacco taxes.
If the estimated Rs 300–400 billion currently lost to illegal cigarettes and related leakages were captured, Pakistan’s cigarette tax collection could realistically move toward Rs 600–700 billion annually. That would almost double the sector’s fiscal contribution, making it a cornerstone of domestic revenue mobilization and strengthening the government’s credibility with investors and lenders.
3. Enforcement is Finally Biting the Mafia
The government has begun responding with more visible, coordinated enforcement. An FBR enforcement plan, summarized in an APP release, describes a multi-layer approach designed to eliminate non-duty-paid production, tighten monitoring, and disrupt illegal supply chains. The plan includes deployment of Pakistan Rangers at Green Leaf Threshing units, posting of more than 200 dedicated tax monitors under Section 40B of the Sales Tax Act and Section 45 of the Federal Excise Act, and a more aggressive use of sealing powers against non-compliant factories.
In parallel, the Inland Revenue Enforcement Network (IREN) has been executing nationwide raids. Business Recorder reports that between 2022 and 2025, IREN conducted 1,404 raids across Pakistan, seizing over 1.13 million kilograms of raw tobacco and 923 million sticks of illicit cigarettes, and sealing eight illegal factories. The estimated value of seized goods was Rs 8.2 billion, with associated duties and taxes exceeding Rs 13 billion.
Despite these gains, smuggled brands such as Pine, Oris, Camel, and Melano are still widely available at Rs 50–100 per pack, compared to a minimum legal tax-paid price of around Rs 210. Estimates cited in the same report suggest that smuggled brands capture 20–30 percent of the cigarette market. This price gap keeps pulling consumers away from legal products and demonstrates why enforcement must be sustained and expanded.
4. Taking on Politically Connected Players
For investor confidence, the key question is whether enforcement reaches politically connected operators or stops at more minor players. The recent pattern of actions suggests that the government is increasingly willing to confront powerful interests.
The APP-carried FBR release on action against tax theft in the tobacco sector notes that Indus Tobacco Company was found storing non-duty-paid, non-Track and Trace System (TTS) cigarettes in an undeclared warehouse in District Mardan. After a raid and seizure of 200 cartons of such cigarettes, FBR sealed the company’s manufacturing machinery. The identical report records that one of the company’s directors, Bilal Khan, who resisted the operation with firearms, is related to a prominent political family in Mardan whose members have served in the Khyber Pakhtunkhwa Assembly.
Earlier that month, FBR also sealed the machinery of Souvenir Tobacco Company for alleged production and removal of non-duty-paid, non-TTS cigarettes. Separately, Daily Times reported that tax authorities seized around 2.5 million sticks of illegal cigarettes registered to Sarhad Tobacco Company, owned by Sheeraz Akram Bacha, a senior Pakistan Muslim League (Nawaz) leader and former provincial minister.
These cases, reported in mainstream media and official releases, send a strong signal that enforcement is starting to apply to businesses linked with political influence. For global investors, the message that “no one is above the law” is more important than the specific brand names involved.
5. From Tax Fairness to Foreign Investment
Foreign investors evaluate not only headline tax rates, but also whether taxes are collected fairly from all market participants. Pakistan’s recent experience shows why this matters. UNCTAD’s World Investment Report, as summarized by Lloyds Bank, records annual FDI inflows into Pakistan of about USD 1.8 billion, with total FDI stock equivalent to roughly 8.5 percent of GDP. State Bank of Pakistan data show net FDI of around USD 860 million in just the first half of FY 2023-24, with energy and financial sectors leading the inflows.
At the same time, the government has established the Special Investment Facilitation Council (SIFC) as a single-window platform for investors and to push FDI toward a target of USD 5 billion. However, no council or policy document can compensate for the damage caused by a large informal sector that openly undermines registered investors.
When foreign companies see that legitimate, tax-paying manufacturers must compete against non-tax-paying factories protected by political connections or weak enforcement, they price this risk into their decisions. The result is a higher risk premium, lower valuations, and in some cases, complete withdrawal from the market. Consistent action against the illegal cigarette mafia, therefore, directly supports the government’s broader FDI agenda by reducing informality, stabilizing tax policy, and signaling that capital invested in compliant businesses will not be arbitrarily undercut by tolerated illegality.
6. What Must Happen Next
To translate the current enforcement wave into lasting investor confidence, Pakistan needs continuity and deepening of reforms. That means fully closing loopholes in the Track and Trace System, strengthening penalties for non-duty-paid production, empowering provinces to tackle illicit sales at the retail level, and ensuring that tax policy changes do not unintentionally reward evasion or protect local non-compliant producers at the expense of formal ones.
Suppose Pakistan can sustain a crackdown that recovers even half of the estimated Rs 300–400 billion in cigarette-related taxes lost annually. In that case, the impact on the fiscal position, debt dynamics, and investor perceptions will be significant. For investors in tobacco and beyond, the core question is whether Pakistan is serious about defending the formal economy. The emerging record of actions against the illegal cigarette mafia suggests that the state is beginning to answer that question in the affirmative.