High taxes brew illicit tea trade

Cause annual revenue losses of approximately Rs10b to national economy

KARACHI:

Macroeconomic analysts and tea experts warn that the burgeoning illicit tea trade poses both economic and health hazards. High taxes and tariffs on legally-imported tea have made smuggled tea a more attractive option, especially for lower-income groups, as the price difference incentivises consumers to opt for the latter to stretch their limited budgets.

The smuggled tea is available in the market at lower prices, making it difficult for legally-imported tea to compete. This not only undermines legitimate businesses but also deprives the government of crucial revenue needed for public services and infrastructure development. Pakistan’s persistent high inflation rate exacerbates the issue by reducing consumer purchasing power. With the cost of living on the rise, many consumers turn to the black market for cheaper alternatives, despite the potential risks involved.

The health risks associated with the illicit tea trade are alarming, as smuggled tea often undergoes adulteration with harmful substances such as dyes, sawdust, and even pigeon blood. These unsafe practices in the informal sector pose significant health hazards to consumers, who may be unaware of the contamination in the tea they purchase.

Industry statistics reveal that the economic repercussions of the illicit tea trade are substantial. Pakistan’s economy suffers from an annual revenue loss of approximately Rs10 billion, underscoring the significant financial strain caused by the avoidance of import duties and taxes. Pakistan is one of the largest tea-consuming countries globally, with an annual consumption exceeding 200,000 tonnes. The legal tea industry in the country, with a market share of 70%, includes two major players among others. Tapal Tea has the largest market share at 29.6%, while Lipton Pakistan Limited, part of the international company Lipton Teas & Infusions, holds an 18% market share, making it the second-largest player in the industry.

However, the growing illicit tea market, now constituting around 30% of the total tea market in Pakistan, is a significant concern and results in substantial economic losses, with an annual revenue loss of approximately Rs10 billion due to the avoidance of import duties and taxes.

“The growing trend of the illicit tea trade in Pakistan calls for urgent measures from both the government and the public,” said Osama Siddiqui, a macroeconomic analyst. Addressing the economic impact and mitigating health risks requires a multi-faceted approach, including stricter enforcement of import regulations, public awareness campaigns about the dangers of smuggled tea, and efforts to make legally-imported tea more affordable through policy adjustments.

As Pakistan grapples with the challenges posed by the illicit tea trade, it is crucial to recognise the broader implications for both the economy and public health, he said. “The annual revenue loss of Rs10 billion is a stark reminder of the financial toll. By addressing the root causes of this trade and promoting safer, legal alternatives, Pakistan can work towards a healthier, more prosperous future,” stressed Siddiqui.