LAHORE - The extraordinary increase in illegal tobacco business in the country has rung alarm bells in higher echelons of authority and now urgent need to check its rampant growth has been acknowledged by the tax authorities.
According to inside sources there has been an increase of 11 percent in illegal cigarette trade during last one year, bringing losses worth billions of rupees to the national exchequer. The sudden surge in the sale of tax-evaded cigarette products is causing annual loss of Rs 10 billion, in spite of the fact that a regulatory framework is already in place to curb such illegal trade.
The alarming figures made available to this correspondent project a doomsday scenario for country’s legal cigarette industry. However the heat is perhaps felt in corridors of power as well as a few months back, Cabinet Secretary Nargis Sethi wrote a letter to Chairman FBR asking him to take stringent measures to check the rising tide of illicit tobacco trade. The letter also referred to Pakistan’s commitment under Article- 15 of Framework Convention on Tobacco Control (FCTC), the first global public health treaty, according to which Pakistan has to take effective legislative, executive, administrative or other measures to eliminate the illicit trade in tobacco products. However, the letter fell short of suggesting specific measures like ban on sale of filter rods to unregistered manufacturers and constitution of special implementation teams.
Experts believe subjecting legitimate cigarette manufacturers to a higher tax regime will not reduce tobacco consumption in the country as smaller players will come forward to fill the void but the government will be the biggest loser in terms of legitimate taxes that it earns from legitimate companies.
The details portray a gloomy scenario for the cigarette industry and make a poignant reading for 2011 as the sale of smuggled cigarettes increased by 65%, going from 1,018 million to 1,685 million alone in this year while the overall share of illicit trade increased by 10% in terms of cigarette sticks going from 18.7% to 20.6% in terms of revenues and the sale of one smuggled Korean cigarette brand alone increased by 90%.
According to the market sources tax evasion has reached such a blatant level that cigarette packs are being openly advertised for sale at as low a price as Rs. 15, whereas under Rule 24-B of the Federal Excise Rules, issued pursuant to the Federal Excise Act 2005, the minimum selling price for a pack of cigarettes is much more than that. Insiders of the industry agree such advertisement and subsequent sale of such cigarettes is clear proof of tax evasion.