By Staff Reporter
ISLAMABAD: Pakistan’s tax authorities seized 16 million sticks of illegal cigarettes on a single day in November, in what they claimed was a historic raid against the rampant tobacco smuggling and evasion that costs the country billions of rupees in lost revenue every year.
The Federal Board of Revenue (FBR) said the operation, which involved 429 raids across the country, was planned and supervised by its Member of Inland Revenue Operations, Mir Badshah Khan Wazir. The FBR tweeted that the successful raids would send a clear message to duty evaders to halt their illicit practices and that criminal proceedings would be initiated against them in the next phase of the drive.
However, experts and industry officials say that such sporadic actions are not enough to curb the menace of illegal cigarettes, which account for more than half of the tobacco market in Pakistan and deprive the national exchequer of an estimated Rs300 billion in taxes annually.
Now the share of illegal cigarettes is going to surpass the formal sector, and estimates suggest that the existing three forms of untaxed cigarettes—including illicit, smuggled, and counterfeit—would balloon up in size and clinch the share up to Rs300 billion. In comparison, the tax-paying companies would contribute only Rs260 billion for the current fiscal year. So, the scale of the problem is huge, and the FBR will have to match up its efforts to control the phenomena of illegal cigarettes.
Such standalone examples could be termed as a good start to curb illegal cigarettes, causing Rs 300 billion in losses to the national exchequer from tax-evaded locally manufactured, smuggled, and counterfeit cigarettes. Such actions were not sufficient to curb this menace from its buds, as estimates suggest that more than 3 billion sticks of illegitimate cigarettes were sold in a month in the domestic market. The seizure of a paltry 16 million sticks is only peanuts if compared with the overall size of the illicit market in the tobacco industry in Pakistan.
The FBR’s data shows that the seizures of illicit cigarettes in the last fiscal year, from July 1, 2020, to June 30, 2021, amounted to only 303.5 million sticks, or less than 0.4 percent of the estimated illicit market size of 86 billion sticks. Out of the total 1,447 enforcement actions taken by the FBR, 247 were carried out by its Inland Revenue Enforcement Network (IREN) and 1,170 by its Customs department.
The largest seizure of illicit cigarettes was made in Balochistan, where Customs Intelligence confiscated 4.28 million sticks of foreign brands, worth 114.2 million rupees. In Sindh, eight operations resulted in the seizure of 1.42 million sticks of high-end brands, worth 69.7 million rupees. In Punjab, the Customs Intelligence team seized 1.29 million sticks of smuggled cigarettes, worth 75.3 million rupees. And in Khyber Pakhtunkhwa, Customs Intelligence seized 1.15 million sticks of smuggled cigarettes, worth 43.9 million rupees.
The FBR said it shares information of raids every month, and that the latest report showed that its IREN squad in Gujranwala, led by Rana Nadeem IRAO, raided a wholesaler shop in the vegetable market and found 20 cartons of different brands of non-duty-paid cigarettes. The stock was shifted to the FBR office for further legal action.
But these figures pale in comparison to the scale of the problem, which requires a comprehensive and coordinated strategy to combat the illicit tobacco trade.
Experts said the illicit cigarette trade is a multifaceted issue that cannot be solved by enforcement alone. It requires a holistic approach that involves policy reforms, tax rationalization, public awareness, stakeholder engagement, and international cooperation.
Pakistan’s tobacco tax regime, which imposes a high and uniform excise duty on all cigarette brands, regardless of their price and quality, has created an incentive for tax evasion and smuggling, as well as a disincentive for legal production and compliance.
The government needs to adopt a tiered tax structure, which would differentiate between premium, mid-price, and low-price segments, and apply a lower tax rate on the latter to make them more affordable and competitive with illicit products.
An effective track-and-trace system would enable the authorities to monitor the movement of cigarettes from the factory to the point of sale and to identify and intercept any illicit or counterfeit products.
The government should raise public awareness about the health and economic risks of consuming illicit cigarettes, which are often manufactured in unhygienic conditions and contain harmful substances.
An engagement of farmers, retailers, wholesalers, and consumers, who are affected by the illicit trade, must seek their help in reporting and resisting the illegal trade.
The authorities should also cooperate with the neighboring countries, especially Afghanistan and Iran, which are the main sources of smuggled cigarettes into Pakistan, and sign bilateral agreements to curb the cross-border movement of illicit tobacco products.
These measures, if implemented effectively, would not only reduce the illicit cigarette trade, but also increase the government’s tax revenue, protect the legal industry and its employees, and improve the public health and welfare of the country.
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