Not the real thing by zabir saeed badar

Not the real thing

Smuggled and counterfeit cigarettes deprive the national exchequer of billions of rupees in revenue 
By Zabir Saeed Badar

How does smuggling and counterfeiting affect our country? a layman may ask. When things are smuggled and counterfeited, government does not get revenue, ultimately the overall economy of the country is affected.

The illegal trade of tobacco products, for instance, not only weakens a country’s ability to improve health of its populace but also takes away billions of dollars in tax revenue from national capital.

According to news and data reports, during the fiscal year 2010-11, the total contribution of cigarette industry to national exchequer was recorded to be Rs.58.5 billion while it was Rs.55.9 billion in 2009-10.

Total tax evasion by the cigarette industry has made the government bear the loss worth Rs 7 billion in 2011 till date, counterfeiting caused Rs1 billion loss while smuggling resulted in the loss of Rs 2.5 billion. So, in 2011 till date, the government has faced the loss worth Rs 10.5 billion while it was Rs 9.5 billion in 2010.

The total tax revenue earned in 2010-11 remained Rs 58 billion while it was Rs 55.9 billion in 2009-10. Minimum cost of cigarette pack including sales tax was Rs 19.49 in 2010 which increased to Rs 22.42 in 2011 till date.

Counterfeit cigarette manufacturing locations are mainly in Chakwal, Sargodha, Okara, AJK and NWFP. Almost 20-25 units are working in such areas.

Pakistan Tobacco Industry (PTI), which plays an outstanding role in Pakistan’s economy is facing hurdles like tax evasion, smuggling and counterfeiting. It contributes approximately US $ 1 billion to the national economy and provides direct employment to some 253,000 people in farming, manufacturing, distribution and retailing and indirect employment to some 87,000 people. 

Unregistered cigarette manufacturing units ostensibly force tobacco farmers to grow substandard tobacco harvest. Their low-quality tobacco is used for producing substandard cigarettes which helps them to get large portion of the profit but the darker side is that they not only play with the health of consumers but also involve smuggling. These illegal practices are damaging the local cigarette industry.

One can witness the influx of smuggled goods in Landi Kotal, Chaman, Quetta, Bara, Pat, and Peshawar, etc. Cigarettes are being smuggled from Afghanistan, Iran and Dubai. The huge access of the smuggled products into local market not only damages the local market but also affects foreign investment.

According to a study, Korea and China are the major sources of cigarettes smuggling from where various cigarette brands are illegally transported to Afghanistan every year.

The Federal Board of Revenue had finalized plans to launch a crackdown against the rising trade of foreign brand cigarettes smuggling into the country to protect the local tax-paying cigarette industry and counter growing revenue losses. According to an official, cigarette smuggling is increasingly damaging the government’s initiatives to expand tax revenue. They have been working to set up a number of teams in all the four provinces where they would conduct raids at the already marked dumping places.

According to their estimate Pakistan is putting up with an annual loss of around Rs. 7.4 billion in terms of revenues and investment inflicted on the cigarette industry due to continued smuggling and illicit trade. 

The FBR’s counter smuggling report had also highlighted that local markets were flooded with smuggled cigarettes which are easily available at retail outlets. Their findings also said that some of the smuggled cigarettes were also without health warning. which is mandatory under the ministry of health rules, on cigarette packing.

Illegal cigarettes and brands having lesser price than the specified rates available in the markets is a clear violation of rules and clearly shows that illegal manufacturers are not paying excise duty to the government.

According to unofficial data about the fiscal year 2007-08 smuggling, tax evasion and counterfeiting only in cigarette industry deprived the national exchequer of billions of rupees in tax revenues which was, no doubt, a heavy loss.

The total licensed manufacturers are more than 50 in Pakistan. In the fiscal year 2009 Rs7.2 billion revenue loss was inflicted by corrupt elements upon the government included Rs5.6 billion due to tax evasion, Rs240 million as a result of counterfeiting and 1.32 billion through smuggling. In 2008, the annual revenue loss from these evils was Rs7.4 billion including 6 billion rupees due to tax evasion, 250m rupees as a result of counterfeiting and Rs1.22 billion on account of smuggling whereas a year earlier total loss to GOP was Rs. 6 billion. The pattern shows continuous growth of counterfeiting, smuggling and tax evasion.

According to last year’s data, Pakistan’s total cigarette market was around 72 billion sticks in which legitimate sector supplied 59 billion sticks to the market, the remaining 13 billion sticks were either counterfeited, non-duty paid or smuggled into the country to save excise duty or tax evaded.

Illegal trade is a very serious threat to the licensed manufacturers in the tobacco industry and to the national exchequer as well. During 2005, the illicit cigarette trade remained around 23 percent of the total cigarettes market of 74 billion cigarettes. The major chunk of this segment is with the local Duty Not Paid sector (DNP) in NWFP and AJK besides other parts of the country while other elements i.e. counterfeit and smuggling are around 2 percent of the total illicit trade. http://jang.com.pk/thenews/oct2011-weekly/nos-23-10-2011/pol1.htm