The cigarette industry has urged the Federal Board of Revenue to take immediate measures to check production of counterfeit cigarettes, causing huge revenue loss to the exchequer. Sources told Business Recorder here on Thursday that the tax machinery particularly directorate general of customs intelligence has to take practical measures to halt tax evasion, counterfeiting and smuggling in cigarette industry which is resulting in billions of rupees loss to exchequer.
Due to on-going smuggling and production of counterfeit cigarettes, the illegal cigarette manufacturer has already caused huge losses to the exchequer. Sources said the government is well aware of the fact that the illegitimate industry is causing huge revenue loss to the economy, however the anti-smuggling departments have to take strict enforcement measures to check the growing menace of smuggling. The data revealed that the revenue loss during the last 7-8 years due to smuggling and counterfeit production of cigarettes has not shown declining trend, which is an alarming situation for the tax authorities.
Sources said that contribution of the cigarette industry to the exchequer during 2010-11 stood at around Rs 58.50 billion against Rs 56 billion in the same period last fiscal.
Two major cigarette manufacturers contributed major chunk of revenue whereas negligible amount has been contributed by other cigarette manufactures of the country. Tobacco smuggling, counterfeiting and tax evasion are problems that have existed for manufacturers, government agencies and its users since long. Whenever, a tobacco product is counterfeited or smuggled, it poses serious risks to its users.
The government also suffers as illegitimate products escape taxation, because such products are either smuggled or counterfeited and are not documented by the government agencies. The legitimate manufacturers also suffer due to revenue loss and hampered brand image.
The Directorate General Intelligence and Investigation Federal Board of Revenue (FBR) has found that the counterfeiting of foreign origin brands/locally manufactured premium brands is taking place in tribal areas as well as rural areas of Punjab and Sindh. The change of procedure from supervised clearance to self-clearance system for cigarette manufacturers has given free hand to the non-compliant units to clear non-duty paid cigarettes from factories.
Sources said that the counterfeiting contributes its own share to leakage of revenue from cigarettes sector. Interestingly, not only locally manufactured premium brands but foreign origin brands are also being counterfeited. As already mentioned most of units engaged in counterfeiting of cigarettes are located in Tehsil "Bara" of Khyber Agency, however, presence of very small counterfeiting units in far-flung rural areas of Punjab and Sindh can not be ruled out.
The largest consumer market of counterfeit cigarettes is rural area of southern Punjab. As per DF intelligence customs, the illegal manufacturers are usually very small units mostly located in tribal areas of Khyber Pakhtoonkhwa. However, presence of such units in far-flung rural areas of other provinces can not be ruled out.
The directorate of I&I FBR found that the cigarettes are usually smuggled from country of origin to UAE and from there via Bandar Abbas to Afghanistan. From Afghanistan cigarettes are smuggled into Pakistan and dumped into warehouses in tribal areas and from thereon smuggled to down country in small quantities. The raw material of cigarette is also smuggled into Pakistan. These are imported through Afghan Transit Trade and then smuggled back into Pakistan through non-notified routes.
Another major risk area is Afghan Transit Trade, which is the main conduit for smuggling of raw material for cigarette. The customs authorities have effected a number of seizures of foreign origin raw material for cigarette ie cigarette paper, tipping paper and filter rods smuggled from Afghanistan into Pakistan.
Smuggling of raw materials of cigarettes causes not only loss of duty/taxes leviable at import stage but also triggers a chain of illegal activities of manufacturing of non-duty paid/counterfeit cigarettes which ultimately causes loss of billions of rupees to the national exchequer.
Entry of non-duty paid cigarettes from AJK into Pakistan are also causing loss of revenue as the same are available at cheap rates as compared with duty paid cigarettes manufactured in Pakistan. Out of the 12 cigarette manufacturers located in AJK, 07 units are operational. These units besides manufacturing their own brands also manufacture cigarettes for other small cigarette manufacturers located in Pakistan on payment of service charges. Small towns and rural areas of Pakistan are consumer market of cigarettes coming from AJK, DG Customs intelligence added.
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