LAHORE-Dr Ishrat Hussain, Advisor to Prime Minister and former governor of SBP, has said that the challenge of illicit trade is real which could be tackled through technology and digitisation.
Speaking at a webinar on illicit trade, he said that there are different researches on the size of the illicit sector, adding, cosmetic changes will not work.
This government has separated tax policy and administration to ensure that honest tax payers and legitimate industries are not burdened further and tax policy does not hurt the economy, he said.
“We are using NADRA and broadband penetration to integrate and chase people who are evading taxes”, he said. He said 75 percent of mobile phones were smuggled previously but with help of technology-based solutions it has been completely eliminated.
The CEO of Pakistan Business Council Ehsan Malik said that the biggest sufferer of illicit trade is common man. He said that despite all the challenges, opportunities outweigh the challenges. He said the rate of growth of MNCs in Pakistan is about twice than the global rate.
Talking about challenges, he said among multiple factors, one of the significant one is high tax rates and that’s coupled with a highly complicated system of tax collection. This is the reason there is a huge incentive to evade taxes. He urged authorities to make it simpler for people to comply with tax regulations.
Multiple taxes are also a challenge, he said. He said Punjab and center have been able to begin to rationalize the systems, other provinces are yet to follow.
Managing Director PMI Roman Yazbeck said that in tobacco industry the legitimate tax paying and regulated industry is losing to illicit trade. Experts say illicit trade is 40 percent which can be an underestimate.
“It matters most if you want to quantify what is the loss to the economy which goes to Rs. 44b. It’s not just a threat to legitimate industry but a threat to the economy and state,” he added.
He reasoned that many countries in Latin America and Europe had similar challenges, perhaps not to the same magnitude, but they have been able to reduce illicit trade.
“We are hopeful that tax institutions will look at the pricing as companies do because once the price of a legitimate product is 100 or 200 percent higher than one of the illicit products, you lose the battle”, he said.
While commenting on the solution, he said “Track and tracing system is the recipe. It has proven to be very effective and implemented in most countries. These are fiscal stamps to recognize every single pack and shipping case.
This helps in tracing illegitimate production but also tracking and tracing the root cause of illicit trade. Track and trace cannot work on its own, you need a system of inspectors on territory, you need wise fiscal policy, you need digital technology and you need to cooperate with legitimate industries and institutions.”
Chief Operating Officer Draz Bjarke Mikklesen said that from an ecommerce point of view cash economy is contributing to insufficiencies.
He said that digitalization and ecommerce is the solution. Presently, he said, huge amounts of smuggled goods coming to market from which the government is not able to collect taxes. It creates difficulty for legitimate sellers and businesses who pay taxes and hinder future growth, he said.
While appreciating that the state in general is taking the right steps towards solutions, he cautioned not to make the solutions too technical.
He said the gap between laws and implementations needs to be bridged. He advised the government to use fraud prevention tools based on AI that have helped curb listing of smuggled products on ecommerce marketplaces.