Ijaz Kakakhel Islamabad
A social research organization, in its latest report launched in Islamabad on Wednesday highlighted that the mammoth gap in tax collection, arising from illicit trade in five sectors of Pakistan namely Real Estate, Tobacco, Tyres & Auto Lubricants, Pharmaceuticals and Tea. The total loss being caused by these 5 sectors alone is approximately Rs 956 billion per annum to the national exchequer.
Parallel economy, automation and financial inclusion is important for economic growth of the country, SAPM and minister of state on reforms and Resource Mobilization Ashfaq Tola said on launching ceremony of IPSOS report regarding tax evasion in key industrial sectors. Tax Evasion is a serious problem. Steps must be taken to boost financial inclusions. “We are taking steps forward but more needs to be done and a positive change will be seen soon”, he added.
Illegal trade is weakening Pakistan’s performance in the global arena and the country is losing a huge amount of invaluable tax revenue, which can be used to enhance development spending.
As per IPSOS 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 PKR 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. Smuggled cigarette brands enter the country through illegal channels, evading taxes and disregarding local regulations. IPSOS research has found that the illicit trade in cigarettes stands at 48% of the total market. This includes 38% of locally manufactured tax evaded cigarettes and 10% of smuggled cigarettes. According to the research, 48% or around 2 Billion cigarette packs are evading taxes to the tune of Rs 240 Billion annually.
According to IPSOS report, 65% of the tyre market is met by illegal or smuggled tyres, while only 20% of the total consumption is locally manufactured and 15% is imported legally. FBR data of 2022 reveals that the Rs 20 billion was collected from the industry which was contributed by the documented players, having 35% 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 Rs50 billion in total.
