Staff Report
ISLAMABAD: A new independent report has estimated that illicit trade is causing annual revenue losses of a whopping Rs3.4 trillion, including nearly 30% loss because of misuse of the Afghan Transit Trade facility.
The losses estimated by the Policy Research Institute of Market Economy (PRIME) in its report titled “Combatting Illicit Trade in Pakistan” are equal to 26% of this fiscal year’s annual tax target.
The gravity of this issue (illicit trade) is manifested by an estimated annual tax revenue loss of Rs3.4 trillion on account of an estimated $123 billion informal economy, according to the report released on Thursday.
The report underlined that the illicit trade has emerged as a critical challenge for Pakistan’s economy, undermining formal businesses, eroding government revenues, and jeopardising consumer safety.
From smuggled petroleum and counterfeit pharmaceuticals to non-tax-paid cigarettes and under-invoiced consumer goods, illicit trade has entrenched itself across key sectors, it added.
The findings are released at a time when there is a growing focus on the role of tax officials in facilitating smuggling and under-invoicing to evade taxes.
The country’s intelligence and investigation agencies have recently pointed fingers towards the customs officials facilitating the smuggling and under-invoicing. There has been credible evidence of even manipulating the goods declaration forms to facilitate tax evasion.
PRIME said that the loss of revenues from the smuggling of tobacco is estimated to be more than Rs300 billion. The government increased the federal excise duty on tobacco products by up to 150% to generate additional revenues for budgetary support in February 2023.
But PRIME said that since then, the market share of illicit cigarettes has increased manifold from 30% to 56%, causing a loss of more than Rs300 billion annually.
The estimated revenue loss from Afghanistan Transit Trade is Rs1 trillion, according to the report.
After making stringent conditions to curb smuggling under the transit trade, Pakistan last month relaxed the conditions by allowing import of Afghanistan-bound goods against insurance guarantees.
PRIME said that the smuggling of oil was causing Rs270 billion losses. The report has estimated the volume of smuggled Iranian oil at 2.8 billion litres. The government charges Rs16 per litre customs duty and a petroleum development levy of Rs78 per litre, a reason for smugglers to shift towards the smuggled oil to make higher profits.
The report said that the outdated border control infrastructure and limited automation in the customs processes make it difficult for the government to prevent smuggling of goods. Pakistan is also lacking in risk-based profiling systems and modern container scanning technologies, it added.
While commenting on the size of the informal economy, the report stated that independent experts consider the size of the informal economy to be one-third of the formal economy. According to the Small and Medium Enterprise Development Authority, the informal economy has a market share of more than 40% of the GDP.
