The public accounts select committee said customs officials must do more to combat duty evasion, with the supply of tobacco to some countries exceeding legitimate demand by 240 per cent.
MPs said the tobacco then finds its way back into the UK market without tax being paid.
“HMRC must be more assertive with these manufacturers,” said committee chair Margaret Hodge MP. “So far it has not fined a single one of them.”
The MPs also criticised anti-smuggling initiatives set up as part of the 2010 Spending Review, saying three of the five programmes had produced nothing and have so far missed their target for extra revenue by £200m.
But the committee found time to praise the overall decline in smuggling over the last decade, with particular praise for HMRC’s decision to expand its network of overseas officers.
Tobacco duty raised £9.9bn for the UK government in 2011/12, with around £1.9bn lost through evasion.