Mighty Illicit Tobacco Sector Stealing over 50% Tax Potential

By Omed Hajjana

Islamabad: Sardar Ayaz Sadiq, federal minister for economic affairs stated that domestic industry and employment generation suffer while Pakistan’s dependency on foreign goods ultimately increases due to smuggling and this has been creating a never-ending vicious cycle.

Addressing the briefing session by IPSOS for parliamentarians regarding tax evasion in five sectors of Pakistan, Sardar Ayaz Sadiq said that it is alarming to see huge tax evasion in 5 sectors, predominantly led by tax evasion in real estate and tobacco.

Estimates reveal that the total annualized tax potential of the tobacco industry in FY-2023-24 would be more than Rs 500 billion but more than 50% of this is stolen by a very powerful illicit tobacco sector, he added.

The minister said that the decline in large-scale manufacturing has also been corroborated by the Pakistan Bureau of Statistics and will have a detrimental long-term impact on legitimate industry sustainability, employment, and exports.

Real Estate is an important sector but has its own disadvantages also and we need to control the mushroom growth of housing societies on agricultural land.

The economy will start improving and we will be seen as a business-friendly nation only once we work towards driving a level playing field for fair market competition.

Tax harmonization is important for business growth, he further stated.

Qamar Zaman Kaira, advisor to the Prime Minster on Kashmir affairs & GB said that Pakistan is losing out one trillion rupees in tax evasion every year while Pakistan can avoid foreign funding support if tax leakages are controlled through the stringent enforcement of laws and bringing the black economy in the tax net.

Kaira further mentioned that the highest tax evasion is in only two sectors, namely real estate, and tobacco, close to 750 billion rupees.

Illegal trade is not only a threat to legitimate businesses in the country, but also to the sovereignty of our country and the employment and livelihoods of our people.

He further said that tax evasion in the cigarette industry of AJK is a major concern for Pakistan. We are collaborating with AJK authorities to fully implement a track and trace system in the AJK cigarette industry.

He further said that we need to focus on increasing exports and decreasing imports. Unfortunately, wheat and fertilizers are also being smuggled out of Pakistan and these mafias are more influential than expected, he added.

Abdul Sattar Babar. CEO of IPSOS briefed the parliamentarians regarding the latest study on tax evasion in five sectors including real estate, tobacco, tyres and auto lubricants, pharmaceuticals, and tea has reached Rs956bn.

Estimated tax evasion in the real estate sector is Rs500 billion annually while the tax evasion in the Tobacco sector touches 240 billion. Custom Intelligence Confiscates Smuggled Cigarettes Worth Millions

Loss due to tax evasion in Tyres and auto lubricants contributed 106 billion and pharma industry tax losses reached Rs 65 billion annually. Rs 45 billion annual tax loss was recorded in the tea sector.

Parliamentarians including members of the national assembly and senate stressed that we all must come together to bring about solutions, and offer the business community a safe operating environment in which commerce and trade can grow. This can only happen when we all work together and in our respective areas strive to eradicate tax evasion.