The crackdown report card

Regardless of around 35 percent bounty is federal revenue; the tobacco industry in the country has one of the largest illicit cigarette market shares in the region. More than 15 billion cigarettes are smuggled into the country each year, with a cost of at least Rs10 billion to the national exchequer in the form of revenues forgone. However the outgoing fiscal proved to be a relatively good year for tax authorities in terms of clamping down on illicit cigarette smuggling and sales through the efforts of the Directorate General of Intelligence and Investigation Inland Revenue (IR) Federal Board of Revenue. Illicit trade in tobacco has serious health, social and economic implications. Besides the financial loss, the illicit and non duty paid tobacco sector also undermines the tobacco control efforts as these illicit brands do not comply with the promulgated regulations. From missing mandatory health warnings and labels to circumventing the tobacco taxes, violation of regulations saps the tax and price policies, which are the most effective mechanisms known for tobacco control. Moreover, high correlation has been found between illicit cigarette trade and high corruption incidence. During FY12, the raids and crackdown at suspicious manufacturing facilities and otherwise resulted in amassing sales tax and federal excise duty to the tune of Rs65.2 billion versus Rs59 billion, an increase of 6.2billion in the inland revenues. This is significant especially when the excise duty on cigarettes was axed by one percent during the fiscal year. Shady places in terms of undocumented cigarette manufacturing facilities, like Mardan, have been the prime focus of the agencys attempts. However, the scale of this war against tax evasion in the tobacco industry has been much broader. The planned showdown not only targeted the small cigarette manufacturers of Khyber Pakhtunkhwa, Azad Jammu and Kashmir, but also the leading distributors of cigarettes manufactured by local and multinational companies and importers of raw material involved in unregistered selling. Over 10 million sticks were seized in FY12 including non duty paid, smuggled and counterfeit ones, and 60-65 percent has been the tax recovery rate for this period. While the arguments by the tobacco sector about increased illicit trade due to higher tobacco taxes pour in from around the world, no research up till now shows such results. Higher tax remains the only way to bring cessation, at least, to the undocumented and unhealthy tax evading sector.