An investigation by the Commons home affairs select committee said failures in dealing with illicit cigarettes were "a matter of grave concern".
But it also suggested that concerns over boosting the black market should not trump public health considerations in the debate over plain packaging.
Rogue products smoked in the UK soared by 49per cent to a billion in 2012, it said, suggesting a reduction in enforcement action.
And the committee was especially scathing of the failure to fine a single firm for deliberately oversupplying cigarettes to high-risk markets so they can be smuggled back to the UK.
The taxpayer loses out on around £2bn in unpaid duty because of the illegal trade. The committee welcomed efforts by HM Revenue and Customs and the Border Force to address acknowledged communication failures, but said more needed to be done to beef up their joint strategy - which was introduced in 2011.
A Border Force spokeswoman said: "The priority for Border Force is security of the UK border and that means both passengers and goods."