Need for combating illicit tobacco trade for economic boost stressed

LAHORE: Emphasising the need for documenting and taxing illicit tobacco transactions, the experts have called for combating illicit tobacco trade for economic boost.

As Pakistan gears up for the formation of a new government, the incoming administration faces a daunting array of economic hurdles, from stagnant growth to foreign exchange pressures, they said. With the urgent need for increased funding on both domestic and international fronts to drive progress and alleviate socio-economic disparities, experts are sounding the alarm on the critical importance of cracking down on illicit trade, particularly the illicit tobacco market, to shore up financial resources and restore investor confidence.

Of particular concern is the rampant surge in illicit tobacco trade, which not only poses a significant threat to the economy but also jeopardizes public health, the experts said. Shockingly, illicit tobacco commands a staggering over 50 percent share of the market, resulting in an annual loss of approximately Rs 240 billion to the government coffers, they said.

In response to this pressing issue, experts advocate for a comprehensive approach, emphasizing the imperative of documenting and taxing illicit tobacco transactions. By formalizing these businesses within the economy, the government stands to unlock a new revenue stream while simultaneously reducing the proliferation of illicit tobacco products, they said, adding: “This strategic move not only promises a substantial revenue boost but also serves to mitigate the detrimental health effects associated with illicit tobacco consumption.”

While hiking taxes on legal cigarettes may seem like an intuitive solution, there’s a risk of inadvertently driving consumers towards cheaper, illicit cigarettes. Therefore, integrating illicit manufacturers into the formal economy emerges as a more sustainable strategy to bolster the tax-to-GDP ratio, fortify financial stability, and safeguard public health concurrently, the experts opined.

The urgency of addressing this issue is underscored by the looming political uncertainty following a closely contested election. Global rating agency Fitch has issued a stark warning, cautioning that prolonged negotiations or failure to secure a financing agreement with the IMF could exacerbate external liquidity stress and elevate the risk of default, they added.

In light of these formidable challenges, the incoming government is implored to prioritize decisive action to combat illicit tobacco trade as part of a broader strategy to stimulate economic growth, enhance revenue generation, and foster public well-being. By tackling this pressing issue head-on, Pakistan can chart a course towards sustainable development and financial resilience in the years ahead, the experts added.

Copyright Business Recorder, 2024