Illegal cigarette trade burning holes of Rs 24 bn in Pakistan's pocket

Pakistan is losing Rs 24 billion annually due to illegal trade of cigarette which has grown at 43.5% rate over the last six years, which accounts for nearly a quarter of the gross trade of the product, according to a media report.

The illegal cigarette trade was causing an annual loss of Rs 24 billion to the national exchequer, as the trend pushed Pakistan to fourth position in Asia in terms of the share of illicit trade in the overall trade of the product, according to the Express Tribune.

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This was made public by a research report prepared by Nielsen, a global market research firm that documents consumer behaviour in over 100 countries.

According to the report, 23.7% of the total cigarettes' trade in Pakistan was illicit and avoids the tax net.

The report added that trade in cigarettes, whether in the form of smuggling, local tax evasion or counterfeit, was a global phenomenon with one in every ten cigarettes and tobacco products reported to be illicit.

In 2013, Pakistan ranked 4th in Asia on the basis of the illicit cigarette share in the total cigarette market in the country.

During the last six years, the illicit segment has grown by 43% and the tax-paid cigarette volume has declined by 11%and on average more than 1 billion illicit cigarettes are annually added to this segment in Pakistan.

Due to vast difference in prices, more and more consumers are opting for illicit substitutes.

The pricing and regulatory differential with neighbouring Afghanistan also plays a key role in the continued inflow of smuggled cigarette into Pakistan.

The report notes that manufacturing a cigarette in itself was an elaborate process and marketing such a huge quantity of cigarette involves extensive operations.

The under declaration of the raw materials, including tobacco crop, cigarette paper and filter rods, helps under-state the volume of cigarette manufactured that ultimately assists in evasion of excise duty and sales tax on cigarettes.

The price differential between legal and tax-evaded cigarettes was the major challenge the government was facing, said Nielsen Pakistan Senior Manager Jawwad Riaz.

He said that there are 13 agencies and 25 laws in place to curb this illicit trade, but records show that despite apparent deterrents, illicit trade was thriving.