smoking-cigarettes-ap670
– File photo

KARACHI, April 10: Pakistan is losing Rs17 billion per annum due to illicit cigarette trade which represents about 26.7 per cent of total cigarettes consumed in terms of volume.

According to a research paper compiled by the Euromonitor International, Pakistan ranked third highest in illicit trade in Asia Pacific countries, behind Malaysia and Hong Kong last year.

When compared to its Asia Pacific counterparts, over a five year period (2006-11), Pakistan’s illicit cigarette trade registered second highest growth of 62.77pc after Vietnam (70.7pc).

During the same period China, the largest cigarette consuming economy in Asia Pacific, registered an impressive contraction in illicit trade by 18pc.

Total government revenue loss over the past five years due to illicit trade amounted to a staggering Rs80bn. This is approximately equivalent to 11pc of the funds approved by the Public Sector Development Programme.

The document further revealed that Pakistan’s illicit cigarette trade comprises three main types, namely, local duty-not-paid (DNP), smuggled and counterfeit. Of these, local DNP cigarettes have the dominant share unlike the global norm where smuggled cigarettes are usually the real cause of concern.

The local DNP cigarettes made up to 84.5pc of total illicit market, while 12pc and 3.5pc were smuggled and counterfeit cigarettes respectively. This high share of local DNP suggests that situation is more of an internal problem, thus highlighting the need for improving local law enforcement.

Therefore, in order to effectively clamp down on illicit cigarette trade, local DNP could be a good starting point and a priority segment for government to target.

The study further states that Pakistan’s huge illicit cigarette trade is fueled by two key components comprising high tax incidence, coupled with weak enforcement of anti-illicit trade laws.

Taxes make up 68.5 to 81pc of the retail price of a cigarette packet, which is considerably high given low purchasing power of average Pakistani consumer.

Illicit cigarette trade is a pervasive issue in Pakistan. It undermines public health agenda, deprives government of much needed tax revenues and cripples tax-compliant cigarette manufacturers.

Euromonitor estimates that an alarming 26.7pc of all cigarettes consumed in Pakistan last year were illicit comprising local DNP, smuggled or counterfeit. This translates to a massive volume of 23.5bn sticks.

It further stated that during 2002-2011, global illicit cigarette trade contracted by 7.3pc whereas in the same period, situation in Pakistan worsened with a growth in illicit trade of 113.6pc.

In fact, volume of illicit cigarettes more than doubled from 11bn sticks in 2002 to 23.5bn sticks in 2011.

This is in sharp contrast to Bangladesh and Sri Lanka where illicit trade has drastically declined, it added.

The document suggested to the government to adopt a holistic approach to tackle this burgeoning illicit trade through multi-pronged approach by making enhanced regulatory and fiscal measures, strict enforcement of existing legislation and heightened awareness among stakeholders.

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Price bombs
Updated 18 Jun, 2024

Price bombs

It just wants to take the easy route and enjoy the ride for however long it is in power.
Palestine’s plight
Updated 17 Jun, 2024

Palestine’s plight

While the faithful across the world are celebrating with their families, thousands of Palestinian children have either been orphaned, or themselves been killed by the Israeli aggressors.
Profiting off denied visas
Updated 19 Jun, 2024

Profiting off denied visas

The staggering rejection rates underscore systemic biases in the largely non-transparent visa approval process.
After the deluge
Updated 16 Jun, 2024

After the deluge

There was a lack of mental fortitude in the loss against India while against US, the team lost all control and displayed a lack of cohesion and synergy.
Fugue state
16 Jun, 2024

Fugue state

WITH its founder in jail these days, it seems nearly impossible to figure out what the PTI actually wants. On one...
Sindh budget
16 Jun, 2024

Sindh budget

SINDH’S Rs3.06tr budget for the upcoming financial year is a combination of populist interventions, attempts to...