Farooq Awan

Pakistan is losing an estimated Rs19 billion annually in tax revenue due to illegal tea inflows, a trend the national tea development strategy warns is undermining the financial viability of the country’s emerging domestic tea sector.

The estimate is based on the assumption that roughly 25 percent of tea entering the local market arrives through undocumented channels, according to a strategy document prepared under the FAO Technical Cooperation Programme.

The report, available with Wealth Pakistan, notes that the widespread availability of untaxed and underpriced tea erodes the competitiveness of formal-sector operators, including local processors who may eventually handle Pakistan-grown leaf.

The document warns that the financial distortion created by smuggled tea discourages investment, weakens incentives for private companies to participate in domestic blending or packaging, and threatens the government’s capacity to fund early-stage tea development programmes.

According to the document, Pakistan’s formal tea market is heavily dependent on imports, and the presence of duty-free or lightly taxed smuggled product weakens the price foundation upon which a domestic industry must be built.

The strategy highlights that imported CTC tea dominates the Pakistani market, creating a price-sensitive environment in which illegal consignments find easy entry. As a result, the formal sector faces challenges in recovering full duties and taxes, further widening the gap between legal and illegal supply chains.

The strategy stresses that Pakistan’s long-term plan to expand domestic tea cultivation cannot succeed without addressing the financial leakages caused by undocumented trade. Early phases of the cultivation programme rely on government support for nurseries, land preparation, infilling, shading and extension services. Since tea takes several years to reach commercial maturity, stable public revenues are essential to sustain planned investments. The document argues that continued losses through smuggling jeopardise this financing environment.

The report recommends revising specific tariff codes, particularly for distinguishing black tea from green tea within the Afghan Transit Trade Agreement framework.

The document suggests that clearer categorisation would help curb the misuse of transit channels and prevent black tea, Pakistan’s largest-volume import, from entering the domestic market without duties. The strategy notes that Afghanistan is primarily a green tea market, making black tea transit volumes inconsistent with genuine consumption patterns.

The report also stresses the importance of coordinated enforcement among customs, commerce and provincial authorities. It states that without a consolidated approach, illegal consignments will continue to erode state revenues and weaken the foundation for Pakistan’s domestic tea programme.

The document highlights that taxes collected on legally imported tea form a potential funding source for the Tea Development Fund proposed under the national strategy, making revenue recovery an essential component of sector development.

According to the strategy document prepared under the FAO Technical Cooperation Programme, reducing illegal tea inflows is not only a fiscal necessity but also a prerequisite for market acceptance of domestically produced orthodox and green teas. If illegal imports continue to undercut market prices, early-stage Pakistani tea—produced in smaller volumes and at higher initial costs—may struggle to secure competitive shelf space and buyer interest.

The report concludes that effective regulation and border control will form an integral part of Pakistan’s broader tea development agenda. By recovering lost revenues and stabilising the pricing environment, Pakistan can create conditions more favourable for investment, quality assurance and long-term commercial sustainability of its tea sector.

Credit: INP-WealthPk