Cigarette Smuggling Flourishing Like Never Before

By Ishfaq Ahmed
The Rampant sale of smuggled cigarette brands is a clear violation of national laws but the government seems to be unmoved by the recent spike in sale and availability of smuggled products throughout the country.

According to industry data, the overall volume of illicit trade has noticeably risen from 19% in 2010 to 22% in 2012 which is alarming. The main contributors to this sharp rise in sale of illicit cigarettes are the phenomenal growth in sale of smuggled brands. This is in sharp contrast to all local cigarette brands being sold in Pakistan, most of which neither had stagnant sales or minimal growth during the same period.

This exponential rise in smuggling hints not only towards weak enforcement by the government, resulting in free flow of illegal goods across the borders and proliferation of such goods at various retail outlets, but also towards the fact that the stagnation of economic growth and inflationary pressure on consumers are creating more demand for cheaper duty evaded smuggled brands. Simply put, consumers don not give up smoking but shift to cheaper alternatives. This demand for cheap smuggled brands creates the incentives for those who supply such smuggled goods to the consumers. While the deterrence of laws and enforcement is weak, this black market is exponentially increasing.

It is surprising to note the wide availability of these smuggled brands such as Pine and others, revealing presence of formal supply chains for these products. Pine, a Korean brand is readily available at any retail outlet at less than half the price of a locally manufactured legal brand since its without any levies or taxes which any legally imported brand is required to pay.

As a result of this violation, colossal revenue loss is being witnessed but surprisingly the government seems to be unmoved about it. The illicit trade of smuggled cigarettes undermines the government tax revenues. This year Government is expecting to collect US$850 million from the legitimate cigarette manufacturers in Pakistan.

This amount can easily been increased if sale of smuggled brands can be checked by the government authorities. It is estimated that government could easily add another US $ 150-200 million to its revenues through curtailing such smuggled brands which would make the contribution from cigarette industry to beyond US$ 1 billion annually in Pakistan.

The crackdown efforts and flurry of advertisements and warnings messages by the FBR over the past few months against smuggled brands was a step in the right direction but the retailers and dealers seem to be undeterred. Whether these efforts by the FBR will be helpful in eliminating smuggling and tax evasion in cigarettes or not, is yet to be seen, but there is undeniably lack of enforcement capacity by the authorities to stop this unlawful influx of smuggled and tax evaded brands in the country. The government should awaken to apprehend and penalize unscrupulous elements smuggling branded cigarettes from across the border into Pakistan.