ISLAMABAD, Jun 7 (APP):Special Assistant to Prime Minister and Chairman, Reforms and Resource Mobilization Committee Ashfaq Tola on Wednesday said that automation and financial inclusion were important for the economic growth of the country.
Launching an IPSOS report regarding tax evasion in key industrial sectors, he said that the government was taking steps forward but more needed to be done and soon a positive change would be seen.
Ashfaq Tola said that tax evasion was a serious problem and effective steps must be taken to boost financial inclusions. He said that illegal trade was weakening Pakistan’s performance in the global arena and the country was losing a huge amount of invaluable tax revenue, which can be used to enhance development spending.
The IPSOS, a global market and social research organization, in its latest report highlighted that the mammoth gap in tax collection, arising from illicit trade in five (5) sectors of Pakistan including Real Estate, Tobacco, Tyres and Auto Lubricants, Pharmaceuticals and Tea. “The total loss being caused by these 5 sectors alone is approximately Rs 956 billion to the national exchequer”, it added.
As per research, tax evasion in the real estate sector is driven by legislative gaps, poor valuation methods, under-invoicing and cash transactions. Estimates suggest that the untaxed potential in the real estate sector could range up to Rs 500 billion.
The report emphasizes enhanced documentation and enforcement by the regulators to curb tax evasion.
The tobacco industry in Pakistan is one of the most heavily taxed industry in the country, hence, it is also the most lucrative to avoid taxes. Locally manufactured tax evaded cigarettes hold a significant part of the market and an estimated 38 percent of the overall cigarette market in Pakistan is composed of such brands.
IPSOS research has found that the illicit trade in cigarettes stands at 48 percent of the total market. This includes 38 percent of locally manufactured tax evaded cigarettes and 10 percent of smuggled cigarettes.
According to the research, 48 percent or around Rs 2 billion cigarette packs are evading taxes to the tune of Rs 240 billion annually.
“65 percent of the tyre market is met by illegal or smuggled tyres, while only 20 percent of the total consumption is locally manufactured and 15 percent is imported legally. Federal Board of Revenue (FBR) data of 2022 reveals that Rs 20 billion was collected from the industry which was contributed by the documented players, having 35 percent share of the market.
Industry experts say that 25% of the tyre import is under-invoiced which increases the loss to government to the tune of rs 50 billion in total.
The government collected Rs 87 billion in taxes from the lubricants industry. This collection is done against the 70 percent of the industry as 30 percent of the oil is reclaimed.
If the use of reclaimed oil is clamped down, then the government can add a staggering Rs 56 billion to its kitty. A total of Rs 106 billion is being evaded from the Tyre and Auto Lubricant Sector.
Pharmaceutical sector is plagued by the menace of counterfeit and smuggled drugs. The financial impact of these illicit drugs is almost Rs 60-65 billion and this loss is further exacerbated by the presence of unregistered and unlicensed pharmacies along with a lack of awareness of the regulators to differentiate between legitimate and illicit drugs.
Estimated amount of tax evasion in tea sector is Rs 45 billion annually. According to report, Large-scale importers meet approximately 55-60 percent of the country’s tea demand, while small traders fulfil the remaining 40-45 percent.
The study suggests that if tax evasion of more than Rs 956 billion in five sectors can be controlled then Pakistan can cover the total cost of the Public Sector Development Program (PSDP) and this huge amount is also enough to fully finance Benazir Income Support Program (BISP).
The report also indicates that collecting this huge amount of tax by curbing evasion through stringent enforcement, Pakistan can enhance the Federal Education Budget by 10 times.
This amount is more than enough to build Mohmand dam, this sum of Rs 956 billion can be used to construct more than 1700 km of motorways and this amount could also be used to provide clean drinking water to all the population.