LAHORE: Pakistan faces tough economic challenges, the biggest concern for Pakistan is the internal and external deficit, in which the debt crunch has played a major role in pushing Pakistan towards a financial crisis.
The biggest challenge for the government is to stabilize Pakistan’s rapidly declining foreign exchange reserves as well as provide resources for development work in the country and to provide relief to the people from inflation.
As per local industry executives, repairing the damage done to Pakistan’s economy by illegal trade and smuggling, the government can provide resources to manage both internal and external deficits without increasing the debt burden.
Many foreign institutions have issued comprehensive reports on the economic losses of illegal trade, tax evasion, and smuggling in Pakistan.
A global research report by IPSOS on tax evasion stated that the shadow economy in Pakistan accounts for about 40% of GDP and about 6% of GDP is being stolen every year.
This is a significant amount of money that can be used to improve the living standards of the people by developing Pakistan’s economy on a sound basis.
According to the report, the top five products/sectors that have caused an annual tax evasion of Rs310 billion to Pakistan’s economy includes Rs35 billion from the illicit trade of tea, Rs80 billion from tobacco, Rs90 billion from tyres and lubricants, Rs45 billion from medicines, and Rs60 billion annually from real estate sector.
The volume of goods smuggled into Pakistan increased nearly threefold from 2014 to 2018. The smuggled goods have penetrated several sectors of Pakistan’s economy.
A staggering 53% of diesel, 43% of engine oil, 40% of tyres,16% of auto parts sold in the country were smuggled. The report revealed 20% of cigarettes in Pakistan were smuggled, as was 23% of tea.
Alarmingly, law enforcement and regulatory bodies in the country are only able to seize a meagre 5% of the goods smuggled into Pakistan.
Chie Executive Officer of Ghandhara Tyre and Rubber Company Limited (Formally General Tyres), Hussain Kuli Khan urged the government to take urgent steps to curb smuggling and import irregularities.
He said that in the current scenario, Pakistan could not afford a massive withdrawal of foreign exchange from the country in the form of imports or smuggling.
As per him, the annual consumption of tyres in Pakistan is 14 million and around 15% – 18% of demand is met by domestic production and more than 50% of the demand is met through smuggled tyres while 35% of tyres are imported legally.
He urged the government to provide a better business environment to improve the competitiveness of local industries so as to meet the challenges facing Pakistan by increasing investments and employment opportunities.
The CEO National Foods Limited, Abrar Hasan, seconded this opinion and stated that fake consumer goods such as spices and other related items are posing serious threats to the FMCG market and denting the economic revenues at the same time.
“We as a company is also facing this problem as a large portion of the population settled in sub-urban and rural parts of Pakistan is having uncontrolled supply of counterfeit products of FMCG goods”, he said.
“We have raised this concern many times with the authorities concerned and regulators that they should develop a stringent anti-counterfeit strategy to effectively curb this menace” he added.
Similarly, the cigarette industry in Pakistan has for many years been pushing for equal application of laws and policies related to the tobacco industry to all manufacturers to prevent illicit trade and provide equal business opportunities.
Muhammad Zeeshan, Executive Director and Chief Financial Officer at Philip Morris (Pakistan) Limited, a multi-national tobacco company operating in Pakistan, said that the illicit cigarette market share has reached 37-40% of the total cigarette market, which is larger than the total consumption in most countries.
With this level of illicit segment, Pakistan has the highest number of illicit cigarettes sold in Asia. he added.
To counter illicit cigarettes, the track and trace system can be a very effective tool to counter illicit cigarettes, however, Track and Trace will only facilitate enforcement and without enforcement, the entire initiative will collapse., he said
“Through effective enforcement of tax and tobacco control laws, we believe that Track and Trace is a very positive development, provided FBR ensures an across-the-board implementation, including AJ&K,” Zeeshan added.