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Pakistan loses an estimated Rs1.6 trillion annually to tax evasion, under-reporting and illicit manufacturing across 18 major economic sectors, according to an assessment by the Federal Board of Revenue (FBR) presented to Prime Minister Shehbaz Sharif.
During the briefing, the FBR Transformation Team updated the prime minister on efforts to introduce real-time digital production monitoring systems across major manufacturing industries. The initiative aims to improve tax compliance, identify undeclared production and curb illicit trade.
Five sectors — tobacco, cement, sugar, tiles and fertiliser — are already fully covered by the monitoring systems. The remaining 13 sectors are at different stages of procurement and installation. The government has set December 31, 2026, as the deadline for nationwide rollout.
The tobacco industry highlights both the progress made and the challenges that remain. Federal excise duty and sales tax collections from the sector rose from Rs284 billion to Rs329 billion in fiscal year 2025-26. This represents an increase of Rs45 billion, which the source attributes to stronger action against illicit and unstamped cigarettes.
Despite the improvement, illicit products account for more than 53% of the cigarette market, according to the assessment. This indicates that illegal manufacturing and distribution remain significant challenges for tax authorities.
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Digital production monitoring is expected to help the FBR compare actual output with declared production. The data could help officials identify under-reporting and target businesses operating outside the formal tax system.
However, effective enforcement will remain essential to address illicit activity across the entire supply chain.
The sugar industry offers a more encouraging example of the potential impact of production monitoring.
Estimated tax evasion in the sector fell from around Rs70 billion before monitoring began to approximately Rs12 billion afterwards, according to the figures provided.
The International Monetary Fund (IMF) projects that production monitoring across sectors could generate an additional Rs48 billion in government revenue during fiscal year 2026-27. Digital invoicing could contribute a further Rs46 billion.
These measures form part of broader efforts to improve revenue collection by strengthening oversight and reducing opportunities for tax evasion.
An expert highlighted the importance of combining digital monitoring with strict enforcement measures to combat illicit trade.
“Digital monitoring, coupled with strict enforcement measures, creates an independent and auditable trail that is vital for curbing illicit trade,” the expert said.
The expert added: “When production data, invoices and tax returns align, compliance improves. Where gaps appear, targeted action across the entire supply chain can effectively bring illicit operators into the tax net.”
Digital systems can help authorities identify discrepancies between production figures, invoices and tax declarations. Officials can then use these discrepancies to guide inspections and enforcement actions.
The FBR aims to collect Rs778 billion through enforcement measures in fiscal year 2026-27.
The planned expansion of production monitoring and digital invoicing could help the government narrow the tax gap and improve compliance across major industries.
If implemented effectively, these measures could increase revenue collection without imposing an additional burden on taxpayers who already meet their obligations. The success of the initiative will depend on timely implementation, reliable data and sustained action against illicit manufacturers and distributors.
[…] Illicit Trade Costs Pakistan Rs1.6 Trillion Annually, FBR Data Shows […]