High tax rates, complicated system pave way for tax evasion, illicit trade

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Zubair Qureshi

Islamabad

Challenges illicit trade and parallel economy are caused by multiple factors, one of the significant one is high tax rates and that is coupled with a highly complicated system of tax collection. It gives huge incentive to evade taxes and demotivates to formalize,” said Ehsan Malik, CEO Pakistan Business Council in a webinar on illicit trade in Pakistan.
Commenting on the complicated taxation system in Pakistan, he added that there are multiple taxes including local taxes, provincial taxes and national taxes. They don’t speak to each other which is a challenge for business in Pakistan.
He said there’s an opportunity to digitalize the systems and make it simpler for people and businesses to comply with regulations.
He opined that despite all the challenges, opportunities outweigh them. Realizing the problem and listening to the taxpayers will be the start towards a solution.” Punjab and center have been able to begin to rationalize the systems, other provinces are yet to follow,” he added.
Adviser to PM, Dr. Ishrat Hussain, MD PMI, Roman Yazbeck and CEO Daraz, Bjarke Mikklesen also spoke on the occasion.
Dr. Ishrat Hussain highlighted the government’s achievement saying it had separated tax policy and administration to ensure that honest tax payers and legitimate industries are not burdened further and tax policy does not hurt the economy.” We are using NADRA and broadband penetration to integrate and chase people who are evading taxes,” he added.
The Managing Director PMI Roman Yazbeck said that In tobacco industry the legitimate, tax paying and regulated industry is losing to illicit trade year on year. Experts say illicit trade is 40 percent which can be an underestimate.
“It matters most if you want to quantify what is the loss to the economy which goes to Rs. 44bn. It’s not just a threat to legitimate industry but a threat to the economy and state,” he added.
While commenting on the solution he said, “Track and tracing system is the recipe. It has proven to be very effective and implemented in most countries. These are fiscal stamps to recognize every single pack and shipping case. This helps in tracing illegitimate production but also tracking and tracing the root cause of illicit trade.
Chief Operating Officer (COO) Daraz Bjarke Mikklesen said that from an ecommerce point of view cash economy is contributing to insufficiencies.