Eliminating illegal trade and tax evasion can help the government in dealing with the COVID-19 crisis

• PM Imran Khan while announcing the ‘COVID-19 Pandemic Relief Fund-2020’ has appealed to people especially overseas Pakistanis and companies to donate to the  fund to help those in need, such as daily wagers.

At this time, when Coronavirus has struck the world and Pakistan, like most of the world is in a state of lockdown, the demand for coronavirus relief fund has increased with the increasing number of patients every day. Prime Minister Imran Khan while announcing the ‘COVID-19 Pandemic Relief Fund-2020’ has appealed to people especially overseas Pakistanis and companies to donate to the  ‘corona relief fund’ to help those in need, such as daily wagers.

At this time many organisations have stepped forward to donate, while on the other hand there are illegal businesses fuelling the parallel economy and not paying taxes, which if recovered can be a huge help during this time of crisis.

If we take a look at the highest tax-paying industries, the legitimate tobacco industry of Pakistan is definitely in top rankings. Unfortunately, this tax is only being paid by 60% of the tobacco industry while the rest of the 40% of the industry is evading taxes. This 40% comprises of local manufacturers who are not only evading taxes by showing less production and under invoicing, but also selling cigarettes on low prices which is yet another breach of the law of the land. This is causing an annual Rs40 – 45 billion loss to the local economy.

Similarly, the petroleum industry, due to the smuggling of Iranian oil has been causing an annual loss of Rs60 billion to the national exchequer every year, according to the Senate Standing Committee on Petroleum. This smuggling reportedly takes place through the Pak-Iran border in Balochistan and is in circulation, hurting the legitimate oil and gas sector. For example, the Pakistan State Oil (PSO) had to shut down 159 petrol outlets in Balochistan where Iranian petrol is freely available at fuel stations and it is cheaper by Rs10 to Rs20 per litre. This not only hurts the business but takes a toll on the overall economy as well.

Another major industry where illegal trade is costing Pakistan a loss of approximately Rs30 billion annually is tyres. According to data provided by a local tyre manufacturer, in the year 2017-18 the national exchequer incurred a loss of Rs30 billion (at the current rate of duty) because of tyre smuggling.

Both Imran Khan and Asad Umar have publically acknowledged the wide presence of illicit trade in the country and measures such as putting in place a track and trace system have been proposed alongside increasing taxes on different industries. Increasing taxes on the legitimate businesses further poses a threat to the economy as businesses will suffer even more, threatening the contribution towards the national exchequer.

During this time of crisis we have to accept the fact that if government is able to restrict the illegal trade in the country by taking strict measures such as the track and trace system and encourage legitimate businesses to maximise productivity by putting reasonable taxes on them, the economy can get better. Just through the aforementioned examples, if illegal trade is controlled, the government would have more than Rs130 billion rupees which can be used to get through this period of crisis.