Last update: Tue, 17 Jan 2017 03pm
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Tea industry must be protected

This budget, there might be some good news for tea lovers in the form of cheaper tea.

Strange, it may sound as budgets normally don set commodity prices, and it won be the case this time either. But if the Economic Advisory Councils proposal to abolish customs duty on tea imports is accepted, it will go a long way in the overdue rationalization of tea prices in Pakistan.

It is widely known that tea is smuggled in Pakistan in massive quantities. To put it in perspective, Pakistan imported 80,000 tons of tea from legal channels, while 90,000-100,000 tons of tea was smuggled - thanks to the Afghanistan Transit Trade Agreement.

The fact that Afghanistan imports more tea than Pakistan is both laughable and eye-opening for related authorities in Pakistan, as Afghanistan consumes Qahwa and not the traditional tea.

The current duty of 10 percent imposed on tea imports provides enough smuggling incentive of around Rs60,000/ton, which causes losses worth billions of rupees to the national exchequer.

If the duty is abolished as proposed by the EAC, the incentive for smuggling, according to industry experts would be then reduced to Rs40,000/ton. This alone may not be sufficient to curb smuggling as even Rs40,000/ton seems enough of an incentive for smugglers.

One way to resolve this is to consider tea amongst basic food items and get exemption from VAT or GST, whatever the tax regime. Alternatively, the tax rate can be cut to 7.5 percent instead of the conventional 15 percent to discourage smuggling.

In that scenario, which sounds a bit idealistic, the incentive to smuggle would be thinned to just Rs20,000/ton, a point where only the daring smugglers could risk their money.

It would also mean tax collection of another Rs7.8 billion generated from tea, which is Rs600 million more than what is earned presently.

It is not as if the amount is of any great significance, but it will go a long way in documenting the otherwise undocumented sector. In addition, abolishing duty should also bring about a long overdue correction in tea prices. Thus, a win-win situation for all.