In order for any country’s economy to prosper, the collection of taxes is a fundamental requirement. Appropriate tax collection allows any government to bring improved public services to citizens and create an inclusive future that leaves no one behind.
As the world begins to see the light at the end of the Covid-19 tunnel, Pakistan must face up to its economic dilemma in the shape of various loans and borrowings. Having one of the lowest tax to GDP ratios in the world, Pakistan’s informal economy shows no signs of slowing down. It is high time that the Pakistan government channels its lost tax revenues into public service development. There is a strong need to improve areas like education, health, and infrastructure development. The opportunity lies in the sizable worth of the tobacco industry, standing at approximately 81 billion sticks sold every year. Out of that number, legal operations account for only about 60% of the market share. The rest is all illegal. Excise duties and sales taxes are responsible for generating enough revenue to contribute significantly to the national exchequer. For example, the government generated PKR 117 billion in tobacco revenues, during FY 2019-20 alone.
It comes as no surprise that in challenging times like the ongoing pandemic, the average consumer shifts their attention to more affordable options in consumables. Cigarettes are no different; consumers look for affordable options even in cigarettes when times get rough. Illegal cigarettes provide just that, a cheap alternative to satisfy the addiction of smoking cigarettes. These illegal cigarettes have now become a cheap alternative to original, tax-paying products. The rising number of illegal operations around the country has become a reason for concern, not only for authorities but for every individual Pakistani citizen as well.
If the government can create and execute a comprehensive strategy to curb illegal cigarette manufacturing and distribution, then it could save up to PKR 77+ billion every year. With that amount, Pakistan could build more than 500 hospitals, which would be completed with an amount of approximately PKR 136 million per hospital, and it would be capable of treating close to 34,000 patients every day. Another efficient use of the additional PKR 77 billion to the national exchequer would be to invest in education capable of accommodating 22 new universities. The federal education budget for this year is PKR 83 billion, and the revenue lost to illegal cigarette manufacturing and trade makes up 92% of it. The threat of tax evasion is determined to continue harming Pakistan’s economy and its right to progress. It is predicted to cross PKR 462 billion, only in the next 6 years. The time to act against illegal businesses is now, and it starts with awareness.
MUHAMMAD ALAMGIR KHAN
Islamabad
