Illicit trade: Govt urged to focus on recovering revenue lost

LAHORE: With Pakistan reeling from the aftermath of devastating floods and heavy monsoon rains, the government has been urged to prioritize curbing illicit trade and tax leakages as a sustainable way to generate revenue for rehabilitation efforts.

The recent floods have caused large-scale destruction in Khyber Pakhtunkhwa and Punjab, wiping out millions of acres of crops and severely damaging infrastructure. The resulting slowdown in agriculture is expected to negatively impact economic activity and GDP growth, sources said.

"At a time when fiscal space is tightening, the government needs to focus on recovering revenue lost to illicit trade," said Osama Siddiqui, a macroeconomic analyst.

A study by global research firm IPSOS estimates that Pakistan loses approximately Rs956 billion annually due to tax evasion across five major sectors: real estate, tobacco, tyres and auto lubricants, pharmaceuticals, and tea.

"With the economic outlook uncertain and climate-related disasters becoming more frequent, the need to strengthen revenue streams has become more urgent than ever," Siddiqui added.

He said that the decisive action against illicit trade could provide the government with the much-needed fiscal space to support recovery, without increasing the burden on ordinary citizens.

According to industry statistics, 54% of cigarettes sold in Pakistan are illicit, resulting in an estimated Rs415 billion in annual tax evasion. Legal tobacco companies, which contribute nearly Rs270 billion to the national exchequer, now account for only 46% of the market share, creating an uneven playing field.

“The government’s priority should be to improve compliance and plug existing leakages, especially from key sectors that are causing massive revenue shortfalls, and one way of doing that progressive enforcement,” Siddiqui concluded.

Copyright Business Recorder, 2025