The main objective of this study was to assess the effect of contraband on government revenue of Segen Area People Zone. The study was descriptive used only primary data from revenue authority employees and contraband business operators through structured questionnaires. The targeted respondents were selected using simple random sampling and judgmental sampling technique. The collected data were analyzed statistically with statistical software. The result of the study shows that the motivating factors were lack of formal income, lack of job and the demand and supply gap in formal operation. The finding also reveals that contraband undermines the government revenue, increases the tax burden on formal business operators and may remove them from official system in to informal nontax paying system. Moreover; it kills the need of the investments and innovations in the country, wipes out foreign currency that a country may earn from legal import export and creates unfair competition in the market. The process of controlling contraband faces a great challenge like a bribe, insufficient skilled and competent manpower, lack of ongoing training, low salary of the workers, corruption, inadequate enforcement and penalties and ineffective respond to tax evasion in the area. Accordingly; to mitigate contraband, the government should raise domestic innovations, manufacturing and human resource capacity development, strengthen strong enforcement of the rules and punishments, and even create a conducive environment for effective coordination and communication among controlling unit and the general public.