Illicit trade: National exchequer lost over Rs80b in last 5 years, claims report

One out of four cigarettes being sold illegally, without payment of due taxes and duties.

ISLAMABAD: Pakistan may have lost more than Rs80 billion to “the black market and the unstoppable transportation of tax evaded products” during the last five years, according to a Euromonitor report.

In its latest report on the current economic situation in Pakistan, the global research group said that illicit trade is rampant in Pakistan, mainly in the tobacco sector.

The report claimed that one out of every four cigarettes in Pakistan is being sold illegally, without the payment of due taxes and duties. It is either smuggled or local duties and taxes have not been paid on it. The growth of this sector has been exponential and in the last five years there has been more than 60 per cent increase in the sale of such cigarettes.

According to estimates, around 1.5 billion duty-evaded cigarettes are sold each month. This means that more than Rs1.5 billion is being lost in revenue every month. In the last five years the government has lost Rs100 billion in duties and taxes due to illicit trade. In 2011 alone, illicit trade cost the government Rs18.5 billion in lost tax revenues. It is estimated that in the next five years, loss to national tax revenues shall exceed Rs100 billion.

While the legal industry is expected to contribute an estimated Rs87 billion in excise and sales tax in the current fiscal year; contributing almost 3% of the total national revenue base, the illegal industry, on the other hand, is expected to further erode the revenue base, undermining all efforts to increase tax collection. If illicit cigarette trade, which at the moment has one-fourth share of the total market, is eliminated, more than $250 million can be added to the national exchequer every year.

Tax experts believe that tactical raids against few large-scale wholesalers and transporters, high visibility outlets and prominent duty evading manufacturers can easily send a message to the small retailers and wholesalers that dealing in duty evaded and smuggled cigarettes is not worth the risk.

The Federal Board of Revenue recently constituted a special commission to assess the quantum of black economy with a special focus on smuggling. According to the commission's report, the value of smuggled items sold in Pakistan, by conservative estimates, exceeds $5 billion per annum, whereas the total tax evasion in the country is believed to be much more than that and is stated to be above $10 billion per annum.

These goods primarily come from a number of countries including Afghanistan, Iran, China, the UAE and India, according to the report. Afghanistan alone, however, acts as a major source of smuggled goods to Pakistan.

Over 60 per cent of merchandise imported by Afghanistan is meant for smuggling into Pakistan.