Islamabad, 30th April 2025—Policy Research Institute of Market Economy (PRIME) and the
Transnational Alliance to Combat Illicit Trade (TRACIT) jointly organised the launch of
TRACIT’s report “Pakistan’s Battle Against Illicit Trade: An Analysis of Challenges and
Pathways to Resilience.”
Two other reports were released: TRACIT’s 2025 Global Illicit Trade Index and PRIME’s
Combatting Illicit Trade in Pakistan: A Structural and Policy Analysis. These reports provide
analysis of how policy weaknesses, enforcement gaps, and structural economic distortions have
allowed illicit markets to flourish. They underline the urgent need for coordinated action across
taxation policy, regulatory governance, border management, and consumer protection.
Jeffrey P. Hardy, Director General of TRACIT, highlighted that Pakistan’s concerning low ranking
on the illicit trade indicates that “effective enforcement of policy is needed on all fronts. The most
important step would be the appointment of a National Illicit Trade Coordinator for effective
monitoring and enforcement.”
The Chief Guest at the report launch, Rana Ihsaan Afzal Khan, Coordinator to PM on Commerce,
affirmed the Government of Pakistan’s strong understanding of the vital link between policy and
enforcement. He cited the negative revenue impact that high taxes had on the beverage sector,
specifically milk and juice. On the enforcement side, he noted that the FBR had been taking the lead
for effective enforcement by installing scanners at the Torkham border, reducing human interaction, building capacity, increasing human resources, and digitizing procedures.
Towards the end, he said, “We have reduced customs clearance time by 39%, but we understand our shortcomings in enforcement and are committed to overcoming them.”
Aleena Imran, COO of Paradigm Shift, also attended the seminar and emphasized the importance of civil society’s active engagement in the country’s political and economic discourse. She highlighted how a participatory civil society can contribute to more informed policy-making, foster accountability, and ensure that diverse voices are represented in national debates.
Illicit trade has emerged as a significant threat to Pakistan’s economy, draining billions from
government revenues, undermining legitimate businesses, and exposing consumers to unsafe and
counterfeit goods. With smuggling and illicit manufacturing expanding across key sectors,
Pakistan loses Rs 750 billion in tax revenue due to illicit trade, a figure which could potentially
escalate to Rs 3.4 trillion, undermining the government’s efforts to achieve tax revenue targets.
Dr Ali Salman, Executive Director of PRIME, stated that illicit trade was on the rise and that the
economic policy needed immediate correction to minimise profit opportunities for illicit product
manufacturers and traders.
The Illicit Trade Index 2025 ranks Pakistan 101st out of 158 countries, a position well below the
global average. In contrast, regional peers such as India (52nd), Bangladesh (95th), and Sri Lanka
(73rd) have performed notably better. Pakistan’s composite score of 44.5 reflects serious
vulnerabilities, particularly in areas related to taxation, regulatory enforcement, and supply chain
security. While the country records relatively stronger performance in Trade, Customs, and Border
management (scoring 75.4), its low scores in managing sectoral illicit trade (29.3) and supply chain
intermediaries (25.9) highlight persistent internal challenges that demand urgent attention.
To address these risks, the reports call for a comprehensive and structured reform program.
At the forefront is the need to reform Pakistan’s taxation policy. The reports recommend
rationalizing excise duties and customs tariffs in line with economic realities to curb incentives for
smuggling and tax evasion. Excessive taxation without consideration of compliance behavior has
led to declining formal market shares, especially in sectors such as tobacco and petroleum.
Strengthening enforcement mechanisms is another pillar of reform. While Pakistan has made
strides in improving border controls, enforcement within the domestic market remains weak.
Expanding the Inland Revenue Enforcement Network (IREN), enhancing market inspections, and increasing spending on FBR’s enforcement operations are crucial steps towards deterring illicit
trade and recovering tax revenue losses at the retail and distribution levels.
The reports also emphasize the urgent need to modernize the Track and Trace System across
excisable products. Current low compliance, especially in the tobacco sector, demonstrates the
system’s underutilization. Strengthening technological robustness, ensuring regular audits, and
introducing serious penalties for non-compliance are critical to restoring the credibility of this tool.
In addition, improving inter-agency coordination is critical.
The absence of systematic collaboration between Customs, FBR, excise departments, and border forces has weakened Pakistan’s enforcement landscape. TRACIT recommends establishing dedicated coordination platforms, fostering intelligence-sharing mechanisms, and conducting joint operations to disrupt illicit supply chains.
By adopting these reforms, Pakistan can significantly curb illicit trade, restore fair market
competition, strengthen government revenues, and rebuild investor confidence. A serious
commitment to institutional reform and enforcement modernization is not only critical for
addressing the economic threat of illicit trade, but also for ensuring long-term, sustainable
economic growth.
Policy Research Institute of Market Economy (PRIME) is a partner of TRACIT in Pakistan.
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The Policy Research Institute of Market Economy (PRIME) is Pakistan's leading free market think tank. PRIME is committed to an open, free, and prosperous Pakistan. PRIME undertakes independent economic research and publishes its findings through books, research reports, and advocacy publications.