Islamabad – ACT Alliance Pakistan has called upon the Government of Pakistan to sustain and expand its actions against illegal businesses, arguing that bringing large parts of the shadow economy under effective regulation could generate billions of dollars in additional tax revenue annually while improving Pakistan’s attractiveness to international investors.
Mubashir Akram, Country Director, ACT Alliance Pakistan, said the ongoing discussions between Pakistan and the International Monetary Fund should also encourage a wider national debate about revenue that already exists inside the economy but remains outside the effective tax and regulatory system.
“Pakistan repeatedly has to borrow from international institutions and bilateral partners to meet financing requirements, while enormous economic activity within the country remains undocumented, undertaxed, or completely outside the legal economy,” Mubashir said. “That contradiction deserves serious attention.”
He noted that the Pakistan Business Council has previously estimated the value of illegal trade at around $68 billion, equivalent to approximately 20 percent of the formal economy, while estimating annual tax losses at around Rs. 8 trillion.
“If Pakistan can substantially reduce illegal economic activity, the additional tax revenue can be measured not merely in billions of rupees but potentially in billions of dollars every year,” Mubashir said. “Before continually searching for new taxpayers and imposing additional burdens on compliant businesses, the state must also recover revenue being lost to businesses that evade the system altogether.”
He said illegal activity in petroleum, cigarettes and tobacco, pharmaceuticals, tea, consumer products, and other sectors creates an uneven marketplace in which tax-paying companies are forced to compete against businesses avoiding duties, taxes, regulatory requirements, and compliance costs.
“The government has taken important enforcement measures, and these should continue without interruption,” he said. “Illegal business networks adapt quickly when enforcement weakens. Pakistan therefore needs permanent market surveillance, stronger Customs and FBR capacity, effective prosecution, and coordination between federal and provincial authorities.”
Mubashir also connected illegal trade with Pakistan’s challenge of attracting foreign direct investment at the scale required for sustained economic growth.
“World-class companies invest where rules are transparent, competition is fair, contracts are respected, and legal businesses are not forced to compete with untaxed and unregulated operators,” he said. “A country cannot reasonably expect major international investors to commit long-term capital while allowing significant parts of its domestic marketplace to operate outside the same rules.”
He added that the debate surrounding IMF programs should increasingly focus on expanding Pakistan’s own revenue capacity rather than treating external borrowing as a permanent feature of economic management.
“Borrowing may provide necessary financial space, but borrowing cannot substitute for building a functioning formal economy,” Mubashir said. “Pakistan must gradually replace dependence on external financing with stronger domestic revenue, exports, investment, and productive economic activity.”
Concluding, he called for a national strategy involving the government, FBR, Pakistan Customs, provincial authorities, businesses, academia, media, and civil society.
“Every illegal business brought into the tax net strengthens Pakistan. Every illegal network dismantled protects legitimate investment. The objective must be simple: make legality easier, illegal business harder, and fair competition non-negotiable.”
