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Business Recorder
21-05-2025
- Business
- Business Recorder
Pakistan's smuggling epidemic
EDITORIAL: For decades, illicit trade and smuggling of goods across multiple sectors have imposed a crippling drain on Pakistan's economy, depriving the national exchequer of vital revenue while nurturing a parasitic shadow economy that has strangled legitimate businesses and stifled growth. The alarming scale of this scourge was underscored last week in a report by the Policy Research Institute of Market Economy and the Transnational Alliance to Combat Illicit Trade (TRACIT), which revealed that Pakistan loses Rs750 billion in tax revenue each year due to rampant smuggling and illegal manufacturing, particularly in sectors like tobacco, petroleum, and pharmaceuticals. Meanwhile, the country's vast informal economy, valued at USD 123 billion, is responsible for an even more severe annual tax loss of Rs3.4 trillion, 30 percent of which stems from the gross abuse of the Afghan Transit Trade facility. Moreover, TRACIT's Illicit Trade Index 2025 ranks Pakistan a dismal 101st out of 158 countries, significantly lagging behind regional peers like India (52) and Sri Lanka (73). The report has further emphasised the country's glaring vulnerabilities in taxation, weak regulatory enforcement and porous supply chains. Pakistan's highly inequitable tax regime, in particular, has played a critical role in fostering this crisis, overburdening legitimate businesses while enabling illicit sectors to flourish without meaningful scrutiny. The tobacco industry exemplifies this distortion perfectly: excessively high tax rates have squeezed formal manufacturers, which contribute 98 percent of the sector's tax revenue, while the illicit sector now controls 56 percent of the market. Far from boosting revenue, higher taxes have led to a nosedive in tax collection, driving consumers towards cheaper, illicit alternatives smuggled effortlessly across Pakistan's porous borders. This brings us to another aspect of this crisis: the sheer volume of counterfeit and contraband products flooding markets, exposing both shocking incompetence and outright corruption by official circles in border management, as well as further down the supply chain, indicating that smuggling networks are operating with near impunity. As far back as December 2023, this newspaper had reported the federal government uncovering a network of mobile phone smugglers and dealers, allegedly supported by multiple departments, including the FBR, FIA, police, FC and PIA. Since then, there has been little meaningful progress in addressing corruption within these agencies, as smuggling persists unchecked across various sectors. The TRACIT report prescribes a multipronged reform agenda that the authorities would do well to urgently adopt, including rationalising of the tax regime to eliminate incentives for smuggling and counterfeit trade, and upgrading of enforcement mechanisms. Despite some improvements in border control measures, domestic market oversight remains weak, necessitating more rigorous market inspections in a bid to crack down on illicit trading activities. The FBR's much-touted Track and Trace system is also in need of more robust implementation. Meant to combat tax evasion by digitally monitoring goods with unique QR-coded stamps, tracking them from factory to sale, the system has faltered due to the widespread use of counterfeit stamps and poor compliance, undermining its effectiveness. Technological upgrades of the system, more exacting audits and stiffer penalties for non-compliance are the needs of the hour. Furthermore, the persistent lack of coordination between Customs, the FBR and security agencies needs urgent redress through the formation of dedicated task forces, streamlined intelligence-sharing and joint operations. Additionally, integrating cutting-edge border management tools, such as high-resolution surveillance drones and automated cargo scanning technology at key transit points and highways, can significantly strengthen the ability of law enforcement to detect smuggling networks. For these measures to have the desired impact, however, Pakistan must first confront the entrenched corruption within its law enforcement apparatus and key departments. Purging institutionalised nexuses between smuggling networks and official circles has become critical. Until this rot is excised, no solution will work. Copyright Business Recorder, 2025
Express Tribune
14-05-2025
- Business
- Express Tribune
Govt urged to review tobacco taxes
Listen to article Experts have cautioned that the government's current tobacco taxation policy, if left unchanged in the upcoming 202526 federal budget, could jeopardize Pakistan's revenue targets. They emphasized the importance of basing fiscal decisions on real-world economic conditions, rather than solely relying on data and recommendations from health advocacy groups, both local and international. To ensure a balanced and effective budget, they urged policymakers to consider the broader economic impact of tax policies, particularly those affecting high-revenue sectors like tobacco, before finalising critical decisions. According to official data, Pakistan has the potential to generate more than Rs600 billion annually from the tobacco sector. Yet this year, only less than Rs300 billion is expected to be recovered. The remaining staggering amount of over Rs300 billion, equalling more than the combined federal budgets for education and health is lost to the illicit cigarette trade. The two major multinational companies, holding 44% of the cigarette market, paid Rs292 billion in taxes during the 2023-24 fiscal year. In stark contrast, over 40 domestic manufacturers, controlling 56% of the market, contributed just Rs5 billion. "The illegal sector now controls more than half the market and pays virtually nothing in taxes. What more evidence do we need?" Fair Trade in Tobacco Chairman Amin Virk questioned as he emphasised the importance of balance. "Yes, taxation has a role in public health, but you cannot ignore the economic consequences in developing countries like ours. When half the market goes underground, you lose the revenue and the ability to enforce health regulations." According to a recent report by the Policy Research Institute of Market Economy (PRIME), illegal trade costs Pakistan Rs3.4 trillion annually, equivalent to 26% of the federal tax target. This includes Rs1 trillion lost via misuse of the Afghan Transit Trade, Rs270 billion from smuggled petroleum, Rs65 billion from counterfeit pharmaceuticals, and Rs106 billion from illegally imported tires. Despite recent enforcement efforts and industry engagement, Pakistan's tax system remains structurally weak, with over 40% of the economy still operating informally and a narrow base of compliant taxpayers. Virk urged the government to act swiftly to ensure and enforce fair taxes in tobacco sector.
Express Tribune
04-05-2025
- Business
- Express Tribune
Trillions lost to smuggling
Listen to article A new study has found that smuggling costs Pakistan's economy an astounding Rs3.4 trillion in losses, which is about 3.5% of GDP. The figure also represents about 26% of the government's tax revenue target for the ongoing fiscal year, meaning that the economy could, on paper, be put on track for success 'simply' by ending smuggling. Unfortunately, ending smuggling is anything but simple. Even wealthy countries with well-documented economic systems often struggle to keep smuggling at low, nuisance levels. Meanwhile, Pakistan and its massive informal economy — estimated to be about one-third of the economy - are ripe for smugglers, especially those taking advantage of Afghan Transit Trade, which alone is credited with causing over Rs1 billion in annual losses, according to a report by the Policy Research Institute of Market Economy. But smuggling is not just about government losses — the illegal trade can greatly impact the quality of prices available in the local market, while also discouraging the establishment and growth of local production. This leads to the loss of potential jobs and long-term growth potential which, in turn, compounds efforts to fund improvements in health, education and other social services and infrastructure. The proliferation of smuggled goods also opens the door for counterfeiting, which is of grave concern in areas such as medicine, where almost half of some categories of drugs are allegedly counterfeit. It is, therefore, unsurprising that Pakistan's subpar showing on the 2025 Illicit Trade Index — the worst in the region — also couples with a finding that we are generally among the worst economic performers among all developing economies. While improving enforcement is not a total solution, it is a start. The government should also look into improving the archaic customs and shipping port infrastructure. Better risk profiling and scanning of containers would go a long way in cracking down on smuggling, as it would help keep the goods from ever entering the local market. The harder part of discouraging smuggling is encouraging a societal attitude shift to reject smuggled goods altogether.
Deccan Herald
02-05-2025
- Business
- Deccan Herald
Illicit trade costing Pakistan Rs 3.4 trillion: Report
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 per cent of this fiscal year's annual tax target, reported The Express Tribune newspaper.
Time of India
02-05-2025
- Business
- Time of India
Pakistan ranks 101 in global Illicit Trade Index 2025, faces annual loss of Rs 751 billion
Pakistan's struggle with illicit trade has resulted in a significant annual revenue loss of Rs 751 billion, according to the 2025 Illicit Trade Index. Ranked 101 out of 158 countries, Pakistan faces vulnerabilities in internal trade networks and sector-specific compliance. The report highlights the need for deeper reforms within the country's regulatory and enforcement systems. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Pakistan has been ranked 101 out of 158 countries in the 2025 Illicit Trade Index, raising serious concerns about its economic environment and ability to attract investment, according to a report by The News country's struggle with illegal trade is resulting in an alarming annual revenue loss of Rs 751 billion, with the tobacco sector alone accounting for Rs 300 billion of this findings were presented in a new report titled "Pakistan's Battle Against Illicit Trade: An Analysis of Challenges and Pathways to Resilience," released jointly by the Policy Research Institute of Market Economy (PRIME) and the Transnational Alliance to Combat Illicit Trade (TRACIT) on report highlights five key sectors driving these losses: Tobacco (Rs 300 billion), petroleum products like petrol and diesel (Rs 270 billion), tires and lubricants (Rs 106 billion), pharmaceuticals (Rs 60-65 billion), and tea (Rs 10 billion).Pakistan scored 44.5 on the Illicit Trade Index, falling below the global average of performance across six dimensions of the Index can be gauged by the highest score observed in Trade, Customs and Borders (75.4), indicating relatively strong border controls and customs management mechanisms. However, Supply Chain Intermediaries (25.9) and Sectoral Illicit Trade Indicators (29.3) score notably low, pointing to serious vulnerabilities in internal trade networks and sector-specific compliance. Moreover, moderate scores in Taxation and Economic Environment (47.3), Regulatory Framework and Enforcement (46.4) and Criminal Enablers of Illicit Trade (42.7) suggest systemic weaknesses in policy implementation and enforcement capacity, The News International the findings suggest that while Pakistan is making some progress at the borders, much deeper reforms are needed within the country's internal trade, regulatory, and enforcement systems to curb illicit trade and support sustainable economic development.
