LAHORE: To address the escalating issue of illicit cigarette trade in Pakistan, a crackdown has been launched on retailers selling non-tax-paid cigarettes, a move that could potentially generate billions for the national treasury.

However, the effectiveness of this initiative remains questionable, especially as Pakistan faces the complex challenge of raising taxes on the salaried class and increasing electricity tariffs for consumers, analysts said.

Recent statistics reveal that the illicit cigarette market has surged to 63% of total consumption, a significant jump from approximately 40% in previous years. This increase has led to a substantial decline in tax revenue, with few legal manufacturers contributing 98% of the total tax collected from the industry, while illicit manufacturers contribute a mere 2%.

A recent market survey conducted in cities including Lahore, Faisalabad, and Sahiwal has revealed the authorities’ lack of progress in properly implementing the Track and Trace System across the tobacco industry. The survey found that in Lahore, tax stamps were present on local illicit brands; however, all the stamps were of the same series or placed outside the packaging. In Faisalabad and Sahiwal, a significant number of illegal cigarette brands were found without any tax stamps, and illicit brands were being sold at higher margins compared to legal brands.

These observations raise questions about the effectiveness of the Track & Trace System on cigarette packs, said Osama Siddiqui, a macroeconomic analyst, adding that there is a need for stronger law enforcement and actionable strategies.

He noted that if the government successfully incorporates out-of-tax-net players into the formal sector, it could potentially collect up to Rs 550 billion (around $2 billion) from cigarette manufacturers. The ongoing rise in illicit cigarette sales has already led to an annual tax revenue loss of Rs 310 billion.

Combined efforts to crack down on illicit cigarette retailers and address negligence in implementation could help the government recover significant economic losses while promoting greater compliance and transparency in the industry, Osama concluded.

Copyright Business Recorder, 2024