Illegal trade in Pakistan is a structural economic and governance problem, not a border issue. The Pakistan Business Council (PBC) estimates that smuggling, under-invoicing, misdeclaration, counterfeiting, and adulteration together amount to about $68 billion a year, roughly 20 percent of the formal economy, and cause tax losses of about Rs. 8 trillion, nearly 85 percent of the FY24 federal tax target.
A joint study by the PRIME Institute and TRACIT estimates that tax revenue lost to illegal trade and related activities is around Rs. 3.4 trillion annually, tied to an informal economy of roughly $ 123 billion. Against that backdrop, the enforcement surge that began around 1 October 2025 is both overdue and economically essential.
Over the past quarter, Pakistan Customs, Inland Revenue, and the police have launched coordinated actions across the country. In Khyber Pakhtunkhwa, the Collectorate of Customs Enforcement, Peshawar, reported operations worth about Rs. 74.4 million, including three trucks in Dera Ismail Khan carrying 12,200 kilograms of betel nuts, 4,021 sleeves of foreign cigarettes, and 170 tyres, as well as vehicles loaded with non-duty-paid cosmetics and cigarettes. A separate Peshawar action seized smuggled inputs worth Rs. 27.4 million, including cigarette acetate tow, paper, filter-rod trays, shisha flavors, and branded soaps. Customs Enforcement Multan intercepted smuggled cigarettes valued at Rs. 21.134 million. At the same time, Customs Quetta reported seizures of tyres, fabric, cigarettes, and other goods worth about Rs. 138 million as part of strengthened anti-smuggling drives in Balochistan.
Along the northern border, Pakistan Customs foiled a significant attempt at Sost dry port in Gilgit-Baltistan, seizing mobile phones, weapon parts, alcohol, and pork products valued at roughly Rs. 157.7 million, with estimated duties and taxes of about Rs. 78.5 million. On the coastal belt, Customs Enforcement Gadani reported seizures of nearly Rs. 1 billion in one week, including 188 kilograms of hashish and multiple consignments of smuggled Iranian fuel and other illegal goods moving along the RCD Highway. In Karachi, Customs (Enforcement), together with Sindh Rangers and Sindh Police, intercepted 22 trucks and a 40-foot container of foreign fabric despite violent resistance from a mob, underlining that urban distribution networks are now under pressure as well.
The cigarette and tobacco sector sits at the center of this new effort because it is simultaneously a top taxpayer and a major source of leakage. Federal Board of Revenue (FBR) data and media analysis indicate that the legal cigarette and tobacco industry contributes around Rs. 225–285 billion annually in federal excise duty and related taxes, making it one of Pakistan’s largest tax-paying sectors. PRIME and TRACIT estimate that illegal tobacco now accounts for about 56 percent of the market and alone deprives the exchequer of more than Rs. 300 billion in revenue each year. Some business press estimates place this loss even higher, at close to Rs. 415 billion annually.
In late November, the federal government approved a multi-layer enforcement plan focused on non-duty-paid cigarette production. The plan deploys roughly 120 Pakistan Rangers personnel at Green Leaf Threshing units, more than 200 Inland Revenue monitors inside factories, and closer coordination among Inland Revenue, FBR Intelligence, and Pakistan Customs. The same announcement acknowledged that illegal cigarette manufacturing and trade are costing the treasury roughly Rs. 250–300 billion a year. This matters not only for fiscal arithmetic but also for investor confidence in a sector that should be a predictable, rules-based source of revenue.
A defining feature of this quarter’s actions has been the move against politically connected factories. Reporting and official statements show that the Souvenir Tobacco Company plant in Mardan, owned by JUI-F Senator Dilawar Khan, was sealed after evidence of non-duty-paid and non–Track and Trace cigarettes was found. Soon after, Indus Tobacco Company faced similar action; FBR Intelligence first recovered 200 cartons of non-duty-paid cigarettes in Mardan, then regional officers sealed the machinery under federal excise rules despite armed resistance. RTO Peshawar separately targeted Khyber Tobacco Company’s godowns in District Mardan, seizing about 2.75 million kilograms of non-duty-paid unmanufactured tobacco and identifying a potential tax loss of up to Rs. 19 billion.
In Abbottabad, Inland Revenue moved upstream. On 10 December 2025, RTO Abbottabad seized 3,000 bales of raw tobacco and sealed the premises, in what officials described as one of the region’s largest tobacco seizures. Two days later, the same office dismantled a fully equipped illegal cigarette plant hidden in a hujra, complete with MK-8 machines, packing units, stamping gear, and substantial stocks of non-duty-paid cigarettes and branded packaging linked to Falcon Tobacco. Earlier in December, RTO Peshawar discovered undeclared machinery at Universal Tobacco Company in Mardan, processing cut tobacco for brands such as Café and Ranger, with an estimated output of 6,000–7,000 kilograms per day and an associated revenue risk of about Rs. 45 million daily.
The same pattern of large losses appears in other key sectors. PRIME and TRACIT estimate annual tax losses of roughly Rs. 270 billion in petroleum products, Rs. 106 billion in tyres and lubricants, Rs. 60–65 billion in pharmaceuticals, and Rs. 10 billion in tea, on top of the Rs. 300 billion plus lost in cigarettes. Smuggled fuel through Balochistan and the coast directly undermines legal POL companies that already operate under heavy duties and levies. Counterfeit or unregistered medicines erode public health and fiscal space simultaneously. A 2025 global index on illegal trade in goods gives Pakistan a score of 44.5 and a rank of 101 out of 158 countries, below the worldwide average of 49.9, signaling persistent enforcement weaknesses for investors.
Despite this, the last quarter shows that when political leadership is clear, Pakistani institutions can act. Customs seizures across KP, Multan, Quetta, Sost, Gadani, and Karachi; significant raw tobacco and factory seizures in Mardan and Abbottabad; and police actions against gutka, mainpuri, and illegal liquor in Hyderabad and Dera Ismail Khan all point in one direction: the state is beginning to treat illegal trade as a single, interconnected threat.
The economic logic for continuing and deepening this campaign is overwhelming. In cigarettes alone, bringing the illegal 56 percent of the market into the tax net could lift annual revenue from around Rs. 270 billion to perhaps Rs. 500–700 billion. In POL, tea, and pharmaceuticals, closing even half of the estimated sectoral gaps would release hundreds of billions of rupees for development without raising tax rates on compliant taxpayers. Given PBC’s estimate that the illegal economy drains $68 billion and up to Rs. 8 trillion in taxes each year, stepping back from this enforcement drive would be economically irrational. Sustained, nationwide pressure on all forms of illegal business is about defending the tax base, restoring the authority of the state, and creating a market where investors know that following the law is the winning strategy.