ISLAMABAD - Wholesalers and retailers enjoy high margins on the sale of smuggled cigarettes, while incurring billions of rupees annual loss to the national exchequer in shape tax and duty evasion.
The total government revenue loss over the past five years amounted to a staggering Rs 80 billion, the fresh estimates reveal. It has been observed that the consumers with a low purchasing power usually switch over to cheaper duty evaded cigarettes. This ends up the government with harsh revenue implications.
According to details, the smuggled cigarettes arrive into Pakistan from Afghanistan, Iran, China, UAE and India. Afghanistan alone acts a major source of smuggled goods to Pakistan. In cigarettes the smuggling costs the government a loss of more than Rs. 20 billion a year. Smuggled and illegal cigarettes are available at most shops across the country.
According to a recent study conducted by Euro-monitor International (EMI), Pakistan has a huge illegal cigarette trade that has grown tremendously over the years. This has led to a high tax evasion coupled with weak enforcement of relevant laws. The value of smuggled items sold in Pakistan by conservative estimates exceed $5 billion per annum suggested a report by Federal Board of Revenue (FBR). The total tax evasion in the country is above US$10 billion per annum.
The minimum tax due on each cigarette pack is little over Rs. 22. Most of the illegally smuggled cigarettes are sold below the controlled sum.
The International Monetary Fund (IMF) conditions of reducing the budget deficit to 5.7 per cent as opposed to governments own target of 6.3 per cent may not achievable.
Cracking down on the illegal traders should be on government priority list. Raids on major wholesalers and retailers are in demand so as to curb the ever expanding sale of smuggled goods.
The government should take a strong notice on other forms of illegal trade and bring the entire goods and services sold into the tax net, reducing the budget deficit.