Illicit tobacco trade termed serious threat to documented economy

KARACHI: Illicit tobacco trade is not only causing tax evasion but also posing a serious threat to government’s efforts against documentation of the economy.

The scale of illicit tobacco sector is humongous. According to a study, Pakistan tops Asia in illegal cigarette trade with illicit sectors capturing more than 40 percent of the market.

Stop Illegal Trade’s (SIT) representative Amna Saleem informed that there are around 52 tobacco companies in Pakistan. Two of them with around 60 percent share contribute 98 percent to the taxes collected from the sector. On the other hand, about 50 companies with 40 percent market share contribute only 2 percent of the taxes.

She said it shows the massive room for tax evasion and illegal trade. “The concerned authorities ought to consider this and take strict actions against the illicit sector,” she reasoned.

She said the companies selling cigarettes illegally are causing a loss of Rs 77 billion annually to the national exchequer through tax evasion.

“Government’s objectives of documenting the economy and getting out of The Financial Action Task Force’s (FATF) watch list are tied with clamping down on illicit sectors. It is pleasant to see the resolve at policy makers level, we just need to ensure the decisions and will are transferred into actions,” she added.

The undocumented, or as more widely known, the informal economy is at the forefront of the serious economic challenges faced by Pakistan and also closely linked to money laundering, she mentioned.

Experts believe that Pakistan’s placement in the Financial Action Task Force’s grey list is the indirect implications of the undocumented economy. It is pertinent to mention that Pakistan has been placed on the grey list three times during past 12 years and the recent review has extended the status till June 2021.

They said FATF in its 2012 reported that illicit tobacco trade described the illicit trade in tobacco as a significant predicate offense to money laundering. In the report, the FATF also listed Pakistan as one of the countries where the proceeds from the illicit trade in tobacco are provided to terrorists.

Copyright Business Recorder, 2021