Business Recorder
80pc illicit trade stems from locally made tax-evaded cigarettes

80pc illicit trade stems from locally made tax-evaded cigarettes


ISLAMABAD: Over 80 percent of Pakistanís illicit cigarette problem stems from locally manufactured tax-evaded cigarettes having prices as low as Rs 15-20 against minimum tax payable per pack i.e. around Rs 43.

Experts told Business Recorder here on Thursday that the said brands were produced in factories located in Khyber Pakhtunkhwa and Azad Jammu and Kashmir, where the manufacturers only declare a portion of the actual quantum of cigarettes produced; thereby evading a massive amount of their tax liability. Despite accounting for nearly a quarter of the market, the illicit sectorís tax contribution makes up less than one percent of the total tax revenues from the cigarette industry. As per estimates, the tax evaded cigarettes cost the national exchequer around Rs 45 billion every year.

They said Pakistan was facing big problem of tax evasion in the form of illegal imports.

Effective measures and protocols need to be put in place to check, monitor and take action against such illegal practices. Governance systems then need to be at par with international standards, and the requisite will to enforce these needs to be present. There is a need to a consistent and targeted approach towards tackling not only illicit cigarette trade, but all forms of illicit. What is astounding is to see the lacking awareness of the criminality involved in illicit cigarette trade.

The illicit cigarette industry is also creating hurdles in promoting competition among the competitors in the tobacco market. The competition among the stakeholders in tobacco sector is due to availability of non-duty paid counterfeit cigarettes in the market. The climate for foreign direct investment is determined by a combination of various factors and governance is considered to be one of the most important determinants of an investorís confidence. Investors also seek to be protected from unfair competition, for example, by non-compliant businesses, in the case of Pakistan, cheap tax evading cigarettes, readily available for the youth and masses. It is important to break the strongholds of these duty evaders and to set precedence in the country against tax evasion.

The adverse impact of illicit cigarette trade is thus not confined to tobacco industry or the government alone, but has a far-reaching negative toll on the entire economy and image of the country.

Federal Board of Revenue has taken the initiative to introduce track and trace/tax stamps on cigarette packs. The move is likely to help increase revenues of the government by promoting a legitimate tobacco sector. The implementation of said solution would not only increase tax collection from the cigarette industry, but would also serve as visual proof of tax payment on all locally produced packs; a crucial pre-requisite for enforcement efforts in the country and consequent deterrence, they added.

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