Rs. 44 Billion is looted every year by illicit cigarette trade.

In Pakistan, Rs. 44 Billion is looted every year by illicit cigarette trade. This robbery is done by illicit cigarette manufacturers who under-declare their production to evade taxes.

The FBR has been facing pressures from political elites to abolish adjustable Federal Excise Duty (FED) of Rs300 per kg on the processing of green tobacco at Green Leaf Threshing Plants (GLT).

National Assembly Speaker Asad Qaiser on June 14, 2019 convened meeting to discuss proposal for giving relief to tobacco growers in the budget 2019-20 in which parliamentarians belonging to KP and couple of provincial ministers also participated. The FBR high-ups were asked to abolish the FED of Rs. 300 per kg on tobacco growers by claiming that it is hurting them negatively.

The State Bank of Pakistan (SBP), in its report, has also mentioned that cigarette production fell by 29.3 percent in first half of this fiscal year (FY20) compared to last year (FY19).

According to SBP the re-introduction of two-tier excise duty structure, uncertainty regarding the implementation and mechanism of track and trace system, and continued competition from counterfeits and smuggled alternatives hindered the industry’s progress in first half FY20. In such scenario, the federal government may not be able to generate its targeted revenue, the SBP warned. Industry sources said that if the Health Ministry focuses on implementing its own laws they might be able to generate a lot more revenue. With the help of Federal Board of Revenue (FBR), the revenue collection from the cigarette industry can be increase by restricting illegal trade in the country.

In 2018, Oxford Economics published a report, wherein, a survey was conducted across 16 countries in Asia, Pakistan ranked number 1 for illegal Cigarette Consumption. Off the 77.8 Billion cigarette sticks consumed in Pakistan, 41.9% of that market is captured by illegal cigarettes which account for 32.6 Billion non-tax paid cigarettes. If we are able to collect this amount, it will help bring in new revenue streams which can be invested in Pakistan to improve public services, provide employment opportunities and have a direct impact on our national growth. When we talk about the unfair trade of goods in Pakistan, issues that come under light are: Illegal Wildlife trade, illegal trade of goods like mobile phones, televisions, vehicles, fabrics, auto parts, diesel, tea and trade of tobacco and many others.

A study by the customs department revealed alarming statistics on illegal trade in Pakistan. It is estimated that 59% of the overall demand of the products that includes petroleum, tea, mobile phones and auto parts industry, is met through illegal and unfair trade practices of smuggled goods. This development is an explanation and core reason as to why Pakistan continues to suffer from low tax revenue and a difficult growth path.

The significance of this issue is such that Prime Minister Imran Khan made a mention of illegal trade and smuggling taking place across industries in his ‘First 100 days in Government’ speech and the harm it brings to Pakistan’s economy.

The country will require lots of funds to take the required measures in current scenario but if the government actions will hit the illegal trade within the country, it is expected that a large fund cannot be generated for fight against COVID-19.

There is an urgent need to #StopIllegalTrade of all forms to ensure our country prospers.

Article by Syed Turab Shah