KARACHI: The latest Asia-14 illicit indicator 2013 report suggests that domestic tax-evaded cigarette consumption again accounted for a significant proportion of total illicit consumption in 2013, contributing 82% to total illicit consumption of cigarettes in Pakistan.
The report prepared by International Tax and Investment Center and Oxford Economics has noted that Pakistan continued to be amongst of the top three Asian countries of the studied 14 countries with the highest consumption of illicit tobacco products, the other two being Philippines and Vietnam.
Several government agencies including Inland Revenue Intelligence, Customs Intelligence, Police, Federal Investigation Agency and the Rangers have been tasked with the eradication of illicit tobacco trade but despite that the menace could not be curbed so far. This failure of Federal Board of Revenue is often reflected in low collection of Sales tax and FED.
Historically it has been a trend with FBR that whenever it faces shortfall in revenue whether in collection of Sales, FED or even the Income tax, it targets the already tax-paying individuals and industries. FBR has once again started to leak information that it wants to look into the tax-paying practices of the multinationals and large corporate sector of Pakistan.
Most economic observers believe that such harassment tactics will only further constrict the business environment in the country that is already suffering from political and security instability.
The yearly tax increases on cigarettes which have been far above the inflation and growth of consumers’ incomes are increasing the cost of legal business against the illicit ones that evade all duties and taxes, which creates an anti-competitive market for legitimate industry. The declining share in the market for the legitimate tobacco products then results into lower collections for FBR. Pakistan has seen a consistent trend of increase in the market share of illicit tobacco products since the year 2009 when sudden FED increases were introduced.
There is an increasing need for FBR to seriously address tax evasion and bring non-compliant domestic player into the tax net and curb infiltration of smuggled brands in the market rather scaring away foreign direct investment.
There are number of steps that the government institutions can take to curb illicit trade. Monitoring vulnerable markets through test purchases, screen surveys and pack collections, limiting supply, destroying old production equipment and analyzing product, data and intelligence could help addressing illicit tobacco trade.
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