Home business Illicit trade causing annual loss of Rs44b to national exchequer

Illicit trade causing annual loss of Rs44b to national exchequer

Observer Report


The developing countries in the world usually have an increasing rate of Human Development Index (HDI) and an increasing number of urbanization, but in Pakistan the rate of HDI is the lowest in South Asia while the urbanization is the fastest in the region.
In Pakistan, the ratio between the urban and rural areas is approximately 36:64 with less being urban. According to the 2017 census out of Pakistan’s 207.7 million population, 75.7 million people live in urban area while rest are based in rural areas.
In the recent times Pakistan’s urbanization is increasing by three percent every year, and it has led millions moving to cities in search of better prospects, and hence driving up the housing demand.
According to a research, ‘Pakistan’s Runaway Urbanization’ by Wilson Center, this demand has also increased the prices of properties by rising over 152% since 2012 and the gap between housing prices and income is widening; between 2012 and 2017, housing prices in Pakistan has increased by more than double and rents grew by 180%, while income grew by only 15% in the same period.
The rapid urbanization of Pakistan has been driven in part by widespread rural landlessness, entrenched social discrimination and violent conflict in the country’s peripheries, which has led to millions streaming to cities in search of security and economic opportunity, pushing up housing demand.
This pace of urbanization has caused a gap between supply and demand. According to research derived from 2017 census, at present the urban housing demand in Pakistan amounts to approximately 350,000 units per year. The corresponding supply of these amenities, which is 150,000 units per year, in no way bridges this gap.
Of the 350,000 units demand figure, 62% is accounted for by low-income groups. The lower-middle income demographic takes up a 25% share. The remaining 10%, on the other hand, is attributed by statisticians to the country’s higher and upper-middle income groups.
Pakistan also faces a backlog of over 8.5 million residential units. This figure is increasing by 200,000 units every year.
Considering all this situation the Prime Minister of Pakistan Imran Khan, in October last year, launched the Naya Pakistan Housing Program (NPHP), for low-income groups. The program that took a start in April this year has a target to at least build 5 Million low-cost houses countrywide in a phased manner.
For this, the government has signed a MoU with the World Bank to help in the completion of this project. The cost of this program is expected at $180 Billion over five years with the government intending to earmark under-utilized state land for what is to be affordable housing construction and construction to be financed by the private sector and through commercial bank lending, for which state land would be used as collateral.
If we look at the money that Pakistan is losing every year in different sectors due to the presence of illegal trade, it is much more than the annual amount need to complete this project. Pakistan loses roughly Rs. 300 Billion every year to smuggling of goods in 11 sectors (excluding counterfeit, tax evasion and under-declaration by local manufacturers).
The government can through better economic and enforcement controls collect those funds and invest them to provide housing to the masses. If we take the tobacco industry, of which the PM himself in his 100 day speech mentioned that the 98% of the tax collected from tobacco industry is paid by the two multinational companies that holds a market share of 60% while the rest 40% of the market share that belongs to illicit cigarette manufacturers contributes only 2% of tax revenue. This illicit trade is causing an annual loss of Rs. 44 billion to the national exchequer.
Tobacco is just one sector and one can only imagine the real loss of illegal trade from the remaining 10 sectors. Now imagining if the loss from illicit tobacco sector is recovered, as per an estimate, 100,000 homes can be built annually, which is calculated on the basis of the cost of a single-bed unit.
All the government needs is a better law enforcement to stop this illegal trade and help NPHP and bring down the growing demand of the houses in urban areas.