Shariq Hussain

Panama is among the few countries that allow businesses and individuals to shore up their wealth and evade taxes. It is known as a tax haven. The country helps entities accumulate and grow their wealth without any check and balance especially by their home country legal system.
The tobacco industry has a similar case in Pakistan. A law was passed in July 2005 to bring some industries including tobacco from non-tariff into the tariff. But within a week, the exemption was given to Azad Jammu and Kashmir removing it from the taxed areas.
It’s been 15 years and it has certainly given leverage to the players in the AJK. At least eight manufacturing units emerged after this law. The government agencies need to deal with this. This doesn’t in any way help the country at all. It increases discontent among the legal players. This is only one such example. There are many other bizarre examples too. There are also misreporting in calculating the size of the illegal portion of the tobacco industry. A study estimated the size of the illegal portion of the tobacco industry is 9 per cent of the total market. Either their sample size was flawed or inferring of data and lack of knowledge of the sector’s regulations.
The government has put a minimum price pack of Rs63 since the Federal Excise Duty (FED) in 2005. This means the legal players must sell a cigarette pack above that price. In the same study, it was quoted that the price of the majority of the packs, around 70 per cent, they collected on roads and from shops selling cigarettes were priced between Rs30 and Rs60. Another research, that appeared more clear in its inference of the data, assessed the illegal size of cigarettes at 36 per cent - 20 per cent smuggled and 16 per cent locally produced. According to the tobacco industry’s legal players, the market size of illegal cigarettes has increased to nearly 50 per cent. It may raise eyebrows to trust their words, but it was also reiterated by Prime Minister Imran Khan while discussing the flaws in the tax collection and all economic woes that it entails it. It brings credibility to the argument that the illegal portion of the tobacco industry has been growing gradually.
Some research studies suggest that the illegal manufacturing and trade inflicts Rs44 billion loss to the exchequer. This does not only mean a loss in monetary terms but it trickles down dangerously on the society too. The society is marred with low-priced and low-quality cigarettes that are more dangerous to health. It also disappoints tax-paying businesses as it snatches level playing field. Moreover, a higher number of people get to smoke more because of the availability of low-price cigarettes. Moreover, there are reports that the illegal players have their brand name for cigarettes as well as they sell many counterfeit cigarettes misusing the names of legal brands. It means, they conveniently snatch their pie of a market share in a very cruel way. They use their names to sell and reduce legal companies revenues and by selling low-quality counterfeit cigarettes under their brand name, they damage the brand too. This should certainly be something the government should look into. The times are changing and technology has been enabling us to achieve many things that were previously not possible. The government agencies can start a track and trace system for cigarettes as well. It will help law agencies know that a cigarette pack is coming from where. According to reports, the system is already under Federal Board Revenue (FBR) consideration for industries such as sugar, tobacco and cement where under-reporting is very common. The system will aim at providing a minimum human interface. It will also prevent revenue loss for the government and under-reporting of sales of certain goods to ensure proper payment of duty and taxes.
The government needs to pull up its socks and handle illegal portions of all industries to fix the country’s economy. It will not increase revenues for the but will also develop trust among the country’s tax-paying and legal businesses.
 
—The writer is a freelance journalist with an interest in economic issues