ISLAMABAD, Jun 15 (APP):Minister for Economic Affairs Sardar Ayaz Sadiq on Thursday reiterated his firm resolve of the government to take all appropriate measures to end menace of smuggling and tax evasion for enhancing revenue collection to attain sustainable economic growth in the country.
Addressing the ceremony of study conducted by Ipsos on “Unveiling tax evasion: a close look at five sector in Pakistan”, the minister stressed the need of complete harmonization among the federal and provincial tax collecting authorities to plug the tax leakages.
The minister said that government was striving to take all the stakeholders on board for making viable tax policies to stop tax evasion and enhance local revenue collection, besides incentivizing local manufacturing sector to discourage the imports.
He said the unrealistic polices of last government of Pakistan Tehreek-e-Insaf have sparked the imports as it jumped to $85 billion, which not only put huge pressure on local foreign exchange reserves but it also suffered the domestic industry.
First time in the history of Pakistan, the transfer and postings were put on sale during last four years, he said adding that as a result all those who purchased these posts work for their vested interests rather than serving the country.
He stressed the need to bring all the industry under track and trace system to stop tax evasion, besides removing tax anomalies at federal and provincial level as well as simplification of tax return by the Federal Board of Revenue to overcome accumulated losses of Rs 500 billion.
He said that the Federal Board of Revenue was also directed to expedite work on track and trace system to discourage the smuggling, besides controlling the tax evasion.
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 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.
