LAHORE-Dr Arthur Laffer, an American economist, has emphasised the need to increase the ability for strict enforcement of laws, rather than raising taxes, to curb the illicit tobacco trade in Pakistan.
He highlighted that in a high tax environment, the trend of tax evasion was on the rise. Dr. Arthur urged the government of Pakistan not to increase taxes on cigarettes unless the volume of illicit trade is reduced and the loss of revenue from illicit trade is significantly reduced.
He said that there is a need to improve enforcement capabilities within the country to curb illicit activity. In the short term, till the capabilities catch up, taxes should remain stable because increase in tax will only increase down-trading. He said that tax stamps are one of those capabilities. It is a good starting point but Pakistan cannot stop here, we need more solutions like these.
Dr. Arthur said that implementation of laws on only 2 major players of the tobacco industry is a losing game for the country. The GOP is only increasing production costs of 2 companies but with so many illicit players selling under the legal selling price and this trend is like the country is playing a losing game.
He also highlighted the need for strong political will for the enforcement of laws and to takeaction against illicit players. He added that the impact of the tax hike on consumers that the widening gap between the prices of legally sold cigarettes and tax-evaded cigarettes would push to lower-income consumers turn to illegal cigarettes.
He endorsed the case of legal tobacco industry and stressed that any increase in taxes would result in an increase in illicit activity - if FED increases then down trading will occur and more legal volumes will move to illicit so it is a loss, both the GOP and the private sector.