Up in smoke: Tobacco industry losing billions to tax evasion

Evasion in duties and taxes by illegal cigarette manufacturers has caused losses of over Rs55 billion in last 7 years

ISLAMABAD:

An ineffective government has resulted in the flourishing of counterfeiting and smuggling in tobacco products, while the evasion in duties and taxes by illegal cigarette manufacturers has already caused losses of over Rs55 billion in the last seven years alone.

Sources said the government is aware that the illegal industry is eating up the country’s economy like termites. However, the authorities are yet to take effective measures against this growing menace.

Sources said that the total tax loss to the government from the cigarettes and tobacco has been recorded at Rs10 billion including tax evasion worth Rs7 billion, Rs1 billion in counterfeiting and Rs2 billion in smuggling in the financial year 2010-2011.

According to available research data, the government had to bear a revenue loss of Rs6.5 billion in 2010, Rs6.5 billion in 2009 and similar figures for the preceding years – all due to tax evasion. Counterfeiting, on the other hand, brought a revenue loss of Rs1 billion in 2010 and Rs1 billion in 2009.

Sources said that the total loss to the Azad Jammu and Kashmir government due to tax evasion was recorded to be Rs3 billion in 2010-11.

Tobacco smuggling, counterfeiting and tax evasion are problems that have existed for manufacturers and government agencies and its users for a while. Whenever a tobacco product is counterfeited or smuggled, it poses serious risks to its users.

The contribution of the cigarette industry to the national exchequer during the financial year 2010-11 was worth Rs58.5 billion, of which two major cigarette manufacturers contributed Rs 58 billion. Only Rs0.5 billion was contributed by other cigarette manufactures of the country, a difference that highlights the volume of tax evasion in the sector.

The government also suffers as illegitimate products escape taxation they are not documented by government agencies. Manufacturers also suffer due to revenue loss and hampered brand image.

Published in The Express Tribune, August 12^th, 2011.