1. Introduction / Executive Summary

Illicit trade is a structural issue prevalent in Pakistan in three forms: smuggling of goods
across borders, locally manufactured products on which taxes have been evaded, and
counterfeit goods circulating in place of legitimate products. These illicit practices erode
government revenues, create unfair competition for law-abiding businesses, and distort
markets in ways that undermine investor confidence and economic growth. The government
of Pakistan, while acknowledging the presence of a huge illicit or grey market, introduced a
comprehensive set of legislative and enforcement reforms in the Finance Act 2025. The
success of these reforms is directly linked to the government’s broader objectives of
restoring market competition and closing the revenue leakages that have constrained fiscal
stability.

The reforms span a wide range of measures and adopt modern, digitally enabled approaches
that have been proven effective in comparable economies. They include a mandatory digital
cargo tracking system to monitor goods in real time, technology-based enforcement stations
at borders and transit routes, faceless customs assessment to eliminate mismanagement in
goods clearance, criminalization of tax fraud and fake invoicing, restrictions on high-value
economic transactions for non-filers, and enforcement powers extended to provincial
authorities for counterfeit excisable goods. These measures are designed to modernize
enforcement, improve compliance, and reduce the space available for illicit trade to operate
across the economy.

One year into enactment, it is time to do an initial stock taking of progress. Three reforms can
be highlighted: the Faceless Customs Assessment System, vehicle seizures are being
conducted under the new provisions, and provincial officers have begun seizing counterfeit
excisable goods. Six reforms are in active procurement or early administrative
implementation. Four reforms remain at the legislation-only stage, as each requires an
additional official notification before its provisions can take effect. Reforms that could be
enforced immediately using existing capacity have moved; those that require new digital
infrastructure or a change in institutional behaviour have yet to produce measurable output.

This report is designed to inform stakeholders in tracking progress on these reforms in a
structured and holistic manner. It assesses each reform against the objective the
government has set for it, identifies where implementation is falling short, establishes a
baseline for monitoring outcomes and evaluates efforts in curtailing grey market. As
implementation progresses, this framework will be used to acknowledge reforms, highlight
issues for the attention of policymakers, and assess whether the government’s enforcement
effort is achieving its intended objectives.