Pakistan: Sale of Smuggled Cigarettes Surge by 62pc in Five Years

Source from:  The International News  07/26/2013

Sales of illicit cigarettes have increased by 62 percent over the last five years and it is expected to further grow due to non-implementation of laws to curb this menace.

An official document of the Federal Board of Revenue (FBR) revealed that illicit cigarettes have captured 26 percent of the total market share due to non-implementation of laws, which encouraged the people involved in this business to continue it without any fear.

The illicit trade cost government Rs18.5 billion in tax revenue in 2011 and over Rs80 billion between the tax years 2007 and 2011, while in the next five years, the loss to the national revenue due to sales of tax evaded cigarettes is projected to be Rs100 billion.

It has been pointed out that 84.5 percent of illicit cigarette sold in Pakistan are manufactured by around 50 local units, some of which are owned by highly influential people who evaded tax, and sell it at low prices.

During the last two years, the share of smuggled brands has also seen phenomenal increase of 300 percent, according to the document.

These contraband cigarettes are not only much cheaper but also carry non-healthy warnings on packs.

It is estimated that the loss to the national exchequer due to the sale of tax-evaded cigarettes will reach Rs100 billion annually in the next five years. During the last financial year 2012-13, the legitimate industry is projected to contribute almost Rs24 billion as excise duty and sales tax to the national exchequer, almost three percent of the total revenue generation.

The FBR has estimated that the annual revenue from cigarette industry could go up to $1 billion if the sale of tax evaded cigarettes eliminated. Massive tax evasion by illicit cigarettes, thus, significantly undermines this key source of government revenue, thereby, exacerbating the fiscal gap, it revealed.

It is suggested that a dedicated task force headed by the FBR chairman should be constituted. Other members of the task force should include customers, intelligence, Inland Revenue officials and police. The task force will allow a more focused coordinated approach and can meet regularly to activate the implementation of the current regulatory regime, decided on new ways and means to curtail tax evasion and review progress made on the fight against illicit trade.

It is also proposed to constitute mobile enforcement teams, led by a judicial magistrate for physical raids on suspected manufacturing units, warehouses and retail outlets, which can be set up with pilot arrangements kicking off in top 10 districts.

These mobile enforcement teams will require resources (vehicles and staff) most of which can be financed through the fines levied and collected by mobile courts, it said.

Joint teams of Inland Revenue and Customs Intelligence of the FBR and police for supervised at all suspected sites can be put in place. By tracking movement of goods out of these sites, the joint teams will help stop leakage of government revenue, it was proposed.

To engage people, it was suggested to extend rewards to cover seizure of illicit cigarettes to ensure performance-reward alignment. A special reward scheme for officers who help stop sale of tax-evaded cigarettes can also be set up.

The documents revealed that in 2000-01, illicit trade levels were drastically dropped below five percent due to effective measures by the government. It is highlighted that the laws are already in place to govern each step of cigarette industry's supply chain and with appropriate political will and increased resources the existing law are sufficient for tackling this menace. Enditem