Curb on illegal trade must: Tobacco sector has potential to fetch Rs150bn revenue

KARACHI: The tobacco sector has a potential of Rs.150 billion revenue generation with strict implementation on rules and regulations, curbing the smuggling of imported brands of tobacco products and stopping the illicit cigarette sale. Currently, the government is hardly generating Rs 71 billion from the tobacco sector due to rising share of illicit trade, which currently surged to 40 percent up from 23 percent in 2018. This has resulted in an estimated loss of Rs 70 to 77 billion.

Industry sources urged the decision-makers and the government to take advantage of the experiences of other countries including South Africa and Romania to reduce the economic and social damage caused by the illicit trade in cigarettes and other items in Pakistan.

The impact of the Covid-19 pandemic on the global economy has significantly increased the concerns of the economies vulnerable to illegal trade, such as Pakistan.

They believed that the documented sector and general public are not in a state to bear the pressure of more taxes and the Government needs to tap illegal and illicit trade in the country to generate revenue.

“Economic activity in Pakistan has declined due to the effects of the pandemic. On the other hand, negative growth in GDP has led to a significant decline in per capita income,” said Amna Saleem, spokesperson Stop Illegal Trade (SIT).

Elements involved in the illicit trade are benefiting from the impact on the global supply chain and the disruption in production and supply of local industries amid the declining purchasing power of the people which adversely impact tax paying industries, she added.

She said that Pakistan is not the only country in the world facing these problems. Most countries in the world have reduced the economic and social damage of illicit trade by increasing public support and the capacity of law enforcement agencies.

She informed that South Africa is one of the top countries affected, specially by the illicit trade in cigarettes, which has been a huge source of income for South African criminal gangs and a huge tax deficit for the government among other things.

The sale of cigarettes and alcohol was banned in South Africa during the pandemic which, however resulted in a multiplier increase in sales of the illicit cigarettes and alcohol products.

According to a University of Cape Town study, 93 percent of consumers turned to illegally sold cigarettes during the ban on cigarettes and alcohol.

Although the ban on cigarettes and alcohol was lifted after the lockdown, it was apprehended that the effects of easy access to illegal cigarettes may last for many years.

To deal with this issue South African Consumer Goods Council has set up an “Illicit Crime Hotline” in partnership with manufacturers and the retail industry, which allows users to identify items being sold illegally without their identities. The hotline is helping agencies and law enforcement agencies to crack down on illicit trade and monitor the proceeds of illicit trade, Amna Saleem said. She informed that Romania can also be a role model in curbing illicit trade. After a significant increase in the excise tax rate in 2010, illicit trade in Romania reached 19.2 percent. A special campaign was launched from 2011 to 2013 to curb the illicit sale of cigarettes in partnership with the legal industry, which reduced the illicit trade rate to 15 percent and further reduced it to the same level by 2019, she added.

In addition, investigations were conducted with the help of consultants while partnering with law, customs and police, enhancing their ability to combat illicit trade through training.

Copyright Business Recorder, 2021