Pakistan loses Rs45-50b revenue due to illicit cigarettes

Share of illegal cigarette jumps over 35% due to weak enforcement, poor governance

KARACHI: Pakistan is all set to present the coronavirus influenced budget in the second week of June for the next fiscal year starting July 1. The identification of different sectors of businesses to generate revenue stands as the single largest challenge as every business is recording losses under the lockdown imposed to contain Covid-19.

However, there is at least one strong source of huge revenue generation available to the government for many years; the non-tax paid cigarette, but the mafia stands so strong that Prime Minister Imran Khan has announced to tax them and tried, but remained unsuccessful in the first 18 months of his government.

The government has presented at least three budgets, including mini-ones, during the period.

“Pakistan is losing at least Rs45-50 billion per year in taxes from the illicit cigarette manufacturers operating within and from outside the country,” an industry official said.

The market share of illicit cigarette has surged to over 35% over the years due to weak enforcement, poor governance and poor border controls, the industry official said.

Accordingly, the volume of tax-paid cigarettes and revenues are constantly on decline for quite a long time. While a large section of smokers has shifted to illicit cigarette, which may be made of low quality tobacco, paper, and other stuff as it is available at much cheaper price than the actual cost, including taxes.

The legitimate industry players - who are only two in number and having paid 98% (Rs111.3 billion) of the total industry revenue in taxes to the government in FY19 - have made stronger demands to achieve sustainability in their businesses this time.

“Some proposed measures from our side include stricter enforcement and governance, tougher border controls, implementation of track and trace and other digital and technological solutions, destruction of confiscated contraband and imposition of penalties amongst many others,” Philip Morris Director Communications Sadia Dada said.

Previously, the legal industry officials used to demand change in tax rates and taxing the illicit cigarette manufacturers mostly.

“We advocate for any measures that will create a level playing field for all manufacturers,” Dada said. 

Published in The Express Tribune, May 24^th, 2020.

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