Pakistan losing Rs 3.4 trn due to misuse of Afghan Transit Trade facility

From smuggled petroleum and counterfeit pharmaceuticals to non-tax-paid cigarettes and under-invoiced consumer goods, illicit trade has entrenched itself across key sectors in Pakistan

Pakistan is losing Rs 3.4 trillion, including a nearly 30 per cent loss because of misuse of the Afghan Transit Trade facility due to illicit trade, according to a report.

The losses estimated by the Policy Research Institute of Market Economy (PRIME) in its report titled "Combatting Illicit Trade in Pakistan" are equal to 26 per cent of this fiscal year's annual tax target, reported The Express Tribune newspaper.

The report estimates an annual tax revenue loss of Rs 3.4 trillion on account of an estimated $123 billion informal economy, according to the report released on Thursday.

It underlined that the illicit trade has emerged as a critical challenge for Pakistan's economy, undermining formal businesses, eroding government revenues, and jeopardising consumer safety.

From smuggled petroleum and counterfeit pharmaceuticals to non-tax-paid cigarettes and under-invoiced consumer goods, illicit trade has entrenched itself across key sectors, it added.

The country's intelligence and investigation agencies have recently pointed fingers towards the customs officials facilitating the smuggling and under-invoicing.

The estimated revenue loss from Afghanistan Transit Trade is Rs 1 trillion, according to the report.

After making stringent conditions to curb smuggling under the transit trade, Pakistan last month relaxed the conditions by allowing the import of Afghanistan-bound goods against insurance guarantees.

PRIME said that the smuggling of oil was causing Rs 270 billion in losses. The report has estimated the volume of smuggled Iranian oil at 2.8 billion litres.

The government charges Rs 16 per litre customs duty and a petroleum development levy of Rs 78 per litre, a reason for smugglers to shift towards the smuggled oil to make higher profits.

While commenting on the size of the informal economy, the report stated that independent experts consider the size of the informal economy to be one-third of the formal economy.

According to the Small and Medium Enterprise Development Authority, the informal economy has a market share of more than 40 per cent of the GDP.

High customs duties, complex tariff regimes, inflation, and a growing informal economy incentivise businesses and consumers to move away from the formal sector, according to the report.

Regulatory inconsistency and protectionist trade policies further add to the cost of doing legal business. Simultaneously, porous borders, outdated customs infrastructure, and limited inter-agency coordination allow the unchecked movement of illicit goods, it added.

According to the 2025 Illicit Trade Index, Pakistan ranks 101 out of 158 countries, performing below global and regional averages due to systemic weaknesses in governance, enforcement, and economic policymaking, according to the report.

The Illicit Trade Index, a publication of TRACIT, monitors the performance of countries in preventing illicit trade by considering six broad categories comprising 37 indicators.

Pakistan's score on the index was 44.5, placing it below the global average of 49.9.

This ranking reflects risks and vulnerabilities across multiple dimensions of trade governance, enforcement, and economic regulation, according to the report.