Pakistan’s basic problem is not that there is no economic activity. The problem is that a very large share of that activity remains outside the tax net. Recent work by the Pakistan Business Council (PBC), PRIME Institute, TRACIT, and other researchers shows that the informal and illicit economy is now comparable in size to, or larger than, the documented economy.
The Ratio of Taxed and Untaxed Activity
Pakistan’s formal GDP for FY 2024/25 is estimated at 114.7 trillion rupees, roughly 411 billion dollars. At the same time, multiple studies suggest that the informal or shadow economy accounts for between 40 and 60 percent of GDP.
- The TRACIT “Twin Task” report puts the shadow economy at about 40 percent of GDP.
- The Institute of Policy Studies and other analysts estimate the informal economy at around 59 percent of GDP.
- A SMEDA–ILO supported estimate reported in the press suggests that the informal economy, at 457 billion dollars, is about 64 percent larger than the formal economy of 340 billion dollars.
The Pakistan Business Council’s “Framework to Control Illicit Trade” adds another layer. It estimates the combined value of smuggling, under-invoicing, mis-declaration, counterfeiting and adulteration at 68 billion dollars, about 20 percent of the formal economy, and concludes that illicit trade represents roughly 10 percent of the total economy. The same paper estimates an annual tax loss of 8 trillion rupees, equal to about 85 percent of the federal tax target for FY24.
In parallel, the PRIME–TRACIT work, widely reported in the media, estimates a tax revenue loss of 3.4 trillion rupees every year from illicit trade and smuggling, built around an informal economy of 123 billion dollars.
Taken together, these estimates imply that for every rupee of documented economic activity, there is roughly another rupee in the shadows, and that for every rupee the Federal Board of Revenue collects, a comparable amount may be leaking out through untaxed or under-taxed channels.
| Indicator | Approximate Value |
| Formal GDP (FY25) | Rs 114.7 trillion |
| Shadow / informal economy | 40–59% of GDP |
| Illicit trade value | US$ 68 billion |
| Annual tax loss from illicit trade | Rs 3.4–8 trillion |
Five High-Risk Sectors
Within this broad picture, several studies converge on five sectors as major sources of tax evasion and illicit trade: tobacco, petroleum and other POL products, real estate, pharmaceuticals, and tires and lubricants. PRIME Institute, TRACIT, Pakistan Business Council and survey work by Ipsos and others all highlight these sectors as heavy contributors to the tax gap.
Sector Sizes and Estimated Losses
| Sector | Approximate Market Size | Estimated Annual Tax Loss from Illicit / Untaxed Activity |
| Tobacco | Tobacco market value about PKR 1,106.2 billion in 2024. | Rs 240–300 billion per year in lost tobacco taxes, according to Ipsos, TRACIT and press reports. |
| POL (fuel) | Oil Marketing Companies’ gross revenue around PKR 7,737 billion in FY24. | Around Rs 270 billion a year in lost revenue from smuggled petrol and diesel. |
| Real estate | Real estate sector stock value estimated at about US$ 1.8 trillion; contributes roughly 1.5–2 trillion rupees annually to GDP. | Around Rs 500 billion per year in tax evasion, according to a Brecorder summary of international research cited by PBC. |
| Pharmaceuticals | Domestic pharma sales reached about Rs 916 billion (US$ 3.3 billion) in FY24 and crossed Rs 1.0 trillion by early 2025. | Rs 60–65 billion in annual tax losses due to counterfeit and illicit medicines. |
| Tyres and lubricants | Tyre market size about US$ 2.09 billion in 2025; lubricant market about US$ 404 million in 2023 and roughly 400 million litres per year. | About Rs 106 billion per year in tax evasion from tyres and auto lubricants. |
Taken together, the tax losses just from these five sectors are typically estimated at well over one trillion rupees a year. Different studies use different methodologies and time periods, but the direction is consistent: these are large, high-value markets where a significant share of activity escapes taxation or operates entirely illegally.
Why This Ratio Matters
When such large sectors sit partly inside and partly outside the formal system, the ratio of taxed to untaxed activity becomes a political economy problem. The documented part of tobacco, POL, real estate, pharma, and tyres and lubes bears the full weight of high statutory rates, regulation, and compliance costs. The undocumented part enjoys price advantages and near impunity.
For the state, this means a narrow tax base, chronic underfunding, and recurring pressure to raise rates on already compliant taxpayers. For investors, it creates uncertainty about the rules of the game. For citizens, it means weaker services despite a busy underlying economy.
Focusing enforcement and documentation on these five sectors would not solve every problem, but the numbers suggest that it would materially shift Pakistan’s taxed–untaxed balance in favor of the formal economy, strengthen revenues, and lay a stronger foundation for growth and investor confidence.