ISLAMABAD  - Putting in place a robust reward structure for tax officers can be a game-changer by stopping tax leakage in cigarette sector.

Although a long list of laws is already in place to check tax evasion in cigarette trade, effective on-ground enforcement by tax collectors results in continued revenue leakages.  “Rewards increase motivation for raids and seizures which are necessary steps for improved enforcement and increased tax collection,” said an official while commenting on these tax leakages.

He said that a performance based reward system also reduces chances that tax officers will fall for venal offers of tax-evaders. In many other countries such reward systems have successfully helped in curbing illicit trade in cigarettes, he maintained.

According to estimates, during the current financial year total revenue collection from cigarette sector will be Rs. 87 billion. Sale of smuggled and tax evaded cigarettes causes loss of more than Rs. 15 billion to national treasury. An effective reward scheme could help bring that lost tax back and help in meeting revenue targets.

A number of agencies in FBR are working to curtail illicit cigarette trade. These agencies include Anti-Smuggling Offices in Customs Collectorate, Director General of the Inland Revenue Intelligence and Investigation (IR I&I), Intelligence and Investigation wings of Customs, etc.

This idea is not new in Pakistan. Customs Reward Rules mandated by law have existed for a long time. A part of the proceeds generated from auction of confiscated smuggled goods goes as reward to the efficient tax collectors.

In cases where the goods cannot be auctioned, government rewards high performing officials.  The existing reward rules have not been used for addressing illicit trade in cigarettes. Under the law, confiscated smuggled cigarettes cannot be auctioned. The reason is simple.

The rules, however, provide for reward even in case of no auction. Due to inadequate focus on this leakage, these rules have not been used in case of confiscation of smuggled cigarettes. Existing rewards regulations can be easily amended to include incentives for tax officers who help stop leakage of government revenue through seizures of illicit cigarettes packs.