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ISLAMABAD: The undocumented sales of illicit cigarettes across Pakistan are not recorded anywhere including data maintained by the Pakistan Bureau of Statistics (PBS) and the provincial authorities.

Sources told Business Recorder here on Tuesday that the production and sale data only reflects the documented sales and production figures, but it does not reflect the actual sales including the sale of illicit trade of cigarettes.

The low quality cigarettes having retail prices below Rs30 are being openly sold in the country. The actual production volume has increased manifolds, due to the rise in sale of low-quality illicit cigarettes in the country.

The production data of illicit cigarettes is not recorded in any province of the country including Azad Kashmir. Moreover, the World Health Organization (WHO) has admitted increased illicit trade in the developing countries.

In the presence of the illicit cigarette market, Pakistan ranks lowest in the world on account of cigarette prices.

If these cigarette companies abide by the rule of law then Pakistan would not be in this list. The documented cigarette manufacturing industry has repeatedly warned that any further raise in the share of illicit trade of cigarette would result in closure of factories and decrease in revenue collection of the Federal Bard of Revenue (FBR).

Sources said the will of government to improve enforcement, better legislation, policy measures, and rationalisation of the FED on various slabs of cigarettes would result in controlling the increase of illicit trade in Pakistan. Referring to the report of Oxford Economics, they stated that we estimate the total amount of tax evaded by illegal cigarettes in Pakistan in 2018-2019 was over Rs50.9 billion. This represented nearly 42 percent of the total collected from legitimate sales.

This equated to 1.3 percent of all the government tax revenues in 2018-19, and 2.1 percent of all indirect tax revenues. Put another way, the tax revenues lost to illicit cigarettes are nearly three times the estimated federal government recurrent and development spend on healthcare in 2018-19.

The report estimates that the cost of tax evasion from illicit cigarettes could be far worse in 2019-20.

The report projected that the revenue losses from such evasion could reach Rs77.3 billion this year.

If, in the face of increasing illicit activity, international cigarette manufacturers were forced to change their operating models (and in extreme situations close factories), the impact on Pakistan would be far greater than reduced production and factory closures.

The supply chains supporting these operations are long, reaching all parts of the economy. The reduced manufacturing within the country would adversely affect all companies - and their employees - operating in these supply chains.

Moreover, Pakistan’s desire to become an export hub for the region will be hit, as it will be forced to become an importer of tobacco products.

The threat posed by smuggling may be mitigated by harmonizing the relevant laws to mandate the printing of a health warning similar to local brands on all imported cigarette packs. Such an efficient and effective enforcement is bound to reduce the duty-not-paid cigarette market share and help government achieve its settled objectives, the report added.

Copyright Business Recorder, 2021