Enforcement of track & trace system stressed

Large-scale smuggling of foreign cigarettes causing revenue loss

ISLAMABAD:

While expressing concerns over widespread smuggling of foreign cigarettes, policymakers have called for deploying a track and trace system effectively and bringing the informal sector to the tax net.

During discussions in a recent meeting of the Economic Coordination Committee (ECC), the policymakers observed that tobacco was a major unorganised sector.

They noted that a very little amount of taxes was being collected from the formal tobacco sector owing to large-scale smuggling of foreign cigarettes, which was not under the tax net.

They underlined the dire need for taking effective measures to stop smuggling and bring the informal tobacco sector to the tax net to increase the country’s revenue. In this regard, they suggested, the track and trace system should be effectively deployed.

During a briefing, British American Tobacco (BAT) Group Area Head of Legal and External Affairs, Asia-Pacific, Middle East and Africa (WEST) Mona Iskandarani urged the government for a critical need for the proper implementation of track and trace system to combat the sale of smuggled and illicit cigarettes.

She emphasised that the success of the system would depend on its application across the board coupled with a sustained enforcement drive to control the sale of smuggled and illicit cigarettes. The formal cigarette industry insists that delay in enforcement of track and trace system is causing significant losses and has called for strict enforcement measures.

Though the Federal Board of Revenue (FBR) has taken some measures, the industry demanded sustained efforts across the supply chain to combat the illicit cigarette trade.

Read PM terms smuggling ‘existential threat’

Despite a 15-month lapse since the end of the deadline, only two out of over 40 cigarette manufacturers have implemented the track and trace system.

Shockingly, since its implementation in July 2022, the illicit sector’s share had grown from 37% in financial year 2021-22 to 63% by the end of 2023-24. This increase is expected to cause a revenue loss of Rs310 billion to the government in FY24.

Illicit manufacturers openly flout laws by using counterfeit stamps, placing stamps over polypropylene wrapping on cigarette packs, and even applying stamps manually.

The formal industry stressed that this undermined the purpose of the track and trace system, which was aimed at monitoring production volumes. Illicit cigarette packs without graphical health warnings and track and trace stamps were freely available in the market.

Most of the non-duty-paid cigarettes were being manufactured in AJK, requiring stringent enforcement measures at the entry and exit points to prevent the tax-evaded cigarettes from entering the country.

According to industry players, the battle against illicit cigarette trade depends on a swift and comprehensive implementation, coupled with sustained enforcement efforts. It is essential to preserve the integrity of the tobacco industry and protect government revenues.

Published in The Express Tribune, January 3^rd, 2024.

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