Muhammad Amin Chairman Fair Trade in Tobacco
Pakistan’s tobacco sector has become a sharp test of governance, state authority, and political resolve.
On one side are documented companies that pay billions in taxes, comply with regulatory requirements, and remain visible to the enforcement system. On the other hand, there is a large illegal cigarette network that evades duties, violates Track and Trace rules, floods markets with cheap, untaxed cigarettes, and allegedly benefits from weak enforcement, administrative gaps, and political influence.
This underground trade is no longer a peripheral violation. It has become a parallel economy that challenges the state’s writ and undermines the rights of lawful businesses. A report published in May 2025 exposed the scale of imbalance within the sector. Two multinational cigarette companies, holding 44 percent of the market, paid nearly Rs. 292 billion in taxes during FY2023-24. Meanwhile, more than 40 local manufacturers, controlling 56 percent of the market, contributed only about Rs. 5 billion. The figures showed a sector in which the compliant segment carries the fiscal burden, while large parts of the market continue to operate outside the documented economy.
The crisis became even more serious in April 2026, when an Oxford Economics study estimated that illegal cigarettes now account for more than half of Pakistan’s tobacco market. Out of roughly 80 billion cigarettes consumed annually, nearly 43.5 billion were illegal. The report stated that 64 percent of the illegal trade comes from domestic production hubs in Khyber Pakhtunkhwa and Azad Jammu and Kashmir, while the remaining share enters mainly through smuggling routes linked to Afghanistan.
The economic damage is severe. In November 2025, the Federal Board of Revenue estimated annual revenue losses of Rs. 250 billion to Rs. 300 billion due to illegal cigarette manufacturing and smuggling. Recognizing the seriousness of the issue, Prime Minister Shehbaz Sharif directed authorities to intensify action against tax evasion, under-invoicing, and untaxed cigarette sales while protecting compliant businesses.
Unlike earlier approaches that treated tobacco primarily as a tax-rate issue, the current government deserves credit for treating illegal tobacco as a national enforcement challenge. This is the correct shift. A market captured by untaxed operators cannot be corrected by taxation alone. It requires sustained enforcement, institutional coordination, and protection for the officers implementing the law.
During the past year, FBR teams uncovered undeclared tobacco-processing machinery allegedly used for illegal production, seized non-duty-paid cigarettes, confiscated smuggled acetate tow and filter rods, and dismantled illegal MK-8 cigarette manufacturing units across multiple cities. These operations have shown that the illegal cigarette economy is not informal or accidental. It is organized, well-supplied, and commercially sophisticated.
The crackdown expanded further in July 2025 when the FBR issued SRO 1279(I)/2025, authorizing provincial revenue officials, including Deputy Commissioners and Assistant Commissioners, to exercise Inland Revenue powers against illegal cigarette operations at warehouses, retail outlets, and transport vehicles. By December 2025, enforcement measures were further strengthened by deploying Pakistan Rangers personnel at certain factories to monitor lawful production and prevent tax evasion.
The results are now becoming visible. The government expects an additional Rs. 30 billion in tobacco tax collection during FY2025-26 as legal manufacturers gradually reclaim market share from illegal operators. This is not a routine revenue improvement. It is evidence that sustained enforcement can push parts of the shadow economy back into the documented sector. However, this campaign now faces a serious threat: political interference and vested interests.
Reports have emerged that nearly five to six cigarette manufacturing units in Mirpur and Bhimber, Azad Jammu and Kashmir, have allegedly resumed operations and are again producing illegal cigarettes. Factories operating in AJK have long faced allegations of manufacturing tax-evaded cigarette brands that are later moved into Pakistan’s mainstream markets without payment of duties and taxes. The reported reopening of such units ahead of the upcoming elections in Azad Jammu and Kashmir raises serious concerns that illegal operators are once again attempting to regain space through political protection or administrative leniency.
Parliamentary proceedings related to the tobacco sector have also raised conflict-of-interest concerns. In June 2025, a Senate subcommittee discussing illegal tobacco trade identified Khyber Pakhtunkhwa and Azad Jammu and Kashmir as major hubs of tax-evading cigarette manufacturing. Later, media reports alleged that relatives of a senator serving on the same committee had direct financial ties to cigarette factories targeted by FBR operations on tax-evasion charges. These allegations require careful scrutiny because oversight cannot remain credible if individuals linked to the regulated sector influence forums examining that same sector.
The larger concern is institutional. If individuals with direct or indirect interests in the tobacco business influence forums responsible for monitoring or regulating the sector, enforcement loses neutrality and officers lose confidence. That is exactly what illegal operators need. They do not need the law abolished. They only need the law slowed down, redirected, or made politically risky for those enforcing it.
According to recent news reports, Inland Revenue officers have allegedly become reluctant to pursue politically connected cigarette manufacturers because of pressure from influential circles. The reports further claimed that criticism and humiliation of tax officials in parliamentary committees discouraged aggressive enforcement and created fear among field officers.
It was also alleged that investigations into missing confiscated cigarette stock from FBR warehouses in Khyber Pakhtunkhwa shifted focus away from illegal manufacturers and toward the officers conducting enforcement operations. If this pattern continues, it will send a dangerous message to enforcement agencies: those pursuing tax evaders may themselves become targets. This is precisely why the prime minister’s anti-tax-evasion drive must be protected from all forms of political interference.
The government should institutionalize the current crackdown, expand provincial retail enforcement, protect FBR officers acting lawfully, and ensure that politically connected manufacturers face the same scrutiny as ordinary businesses. Enforcement should not depend on the influence, geography, or political links of the suspected operator. It should depend only on the evidence.
Pakistan has already witnessed the consequences of weak enforcement. Illegal cigarette networks have flourished through administrative loopholes, weak monitoring, and the assumption that political pressure would eventually neutralize state action. The current campaign has begun challenging that culture of impunity. If sustained, it can become one of Pakistan’s most important revenue-recovery success stories. If weakened, the illegal tobacco mafia will treat it as permission to regroup.
Investor confidence cannot grow where illegal operators prosper while compliant businesses bear the tax burden. Investors judge countries not only by tax rates, but by the consistency of law enforcement and the protection of lawful enterprise. If Pakistan fails to reclaim this sector from illegal mafias and vested interests, it will struggle to convince serious investors that the rule of law truly prevails.
The tobacco sector is only one battlefield, but it is a revealing one. If the state can enforce here, it will send a broader message that Pakistan is serious about documentation, revenue recovery, and lawful competition. If it allows political pressure to dilute the campaign, the loss will not be limited to tobacco taxes. It will weaken the credibility of the entire enforcement state.
