Illegitimate cigarettes inflict Rs7.4b annual loss to govt

ISLAMABAD (Online) - While Pakistan is currently facing an acute financial crunch, vices like smuggling, tax evasion, piracy and counterfeiting further add to the economic woes of the country by inflicting huge losses in revenues to the national exchequer every year. The annual revenue loss to the federal government from the illicit practices of smuggling, counterfeiting and tax evasion in cigarette industry alone exceeds Rs 7.4 billion, according to recent data available on the cigarette industry. Among major factors contributing to heavy losses in national revenues, the notable ones include: weak implementation of taxation laws, loopholes in anti-smuggling strategy at the national borders and lack of effective mechanism to combat counterfeit production, particularly in cigarettes. Pakistan's total cigarette market is around 78 billion sticks the legitimate sector supplied around 63 billion sticks to the market while the rest 15 billion cigarettes were either smuggled in the country or marketed by the counterfeiters and non-duty paid manufacturers inflicting Rs 7.4 billion loss to government exchequers. In addition to depriving the national exchequer of the badly needed revenues, these illicit practices also badly hurt the national industry, which was now struggling hard to survive. The unhappy situation brings to the fore the vital need for curbing smuggling and other illegal practices through strict implementation of relevant laws and award of deterrent punishment to the unscrupulous elements. On 63 billion sticks marketed by the local cigarette industry, it contributed around Rs 37.2 billion in the shape of taxes and duties to the government exchequer during 2007-08. While the two major companies alone paid Rs 37 billion in taxes and duties on the 17 brands of cigarette being marketed by them, all the other cigarette companies paid only Rs 200 million on more than 110 brands of cigarettes being produced and marketed by them. The current annual revenue loss of Rs 7.4 billion inflicted by the unscrupulous elements upon the government included: Rs 6 billion due to tax evasion, Rs 250 million as a result of counterfeiting and Rs 1.22 billion on account of smuggling. In 2007, the annual loss from these vices was 7.17b rupees and a year earlier it was Rs 6 billion. The continuous increase in revenue losses highlights the need for drastic measures to curb these illegal practices and thus plug the sources of revenue loss in the cigarette industry. Currently, the minimum retail price for a pack of 20-cigarettes is Rs 14.48. The government stipulated minimum retail price includes the cost of raw material, packaging, excise duty, sales tax and other expenses like marketing and freight. However, surprisingly there are many cigarette brands that are being sold at a price lower than the minimum fixed price. It is suggested that strict implementation of relevant laws and also deterrent penalties to the unscrupulous elements so that the local legitimate cigarette industry, which has heavily invested on its genuine brands, could be saved from ruination and the position of government revenue could be improved, which will ultimately strengthen the national economy.

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