Laffer says tobacco industry faces ‘critical’ challenge of dealing with untaxed cigarettes – Business & Finance

ISLAMABAD: Renowned US economist Arthur Betz Laffer has said that the tobacco industry in Pakistan faces a critical challenge of dealing with a large presence of untaxed cigarettes.

In a recent interaction with reporters on tobacco taxation here in Islamabad, Laffer said that the implementation of the tracking and tracing system in Pakistan is only possible after verifying the threat of illicit cigarettes in the country. .

He also presented a global comparison of tobacco taxation by various tax jurisdictions and its implications on revenue collection and illicit trade / smuggling.

He said Pakistan’s legal cigarette industry includes two multinational companies that contribute 98 percent of cigarette excise revenue despite having a market share of only 60 percent.

On the other hand, untaxed cigarettes produced by 52 local manufacturers, who have a market share of over 40 percent but contribute only 2 percent to the public purse.

He said that as excessive tax policies widened, the price gap between legal cigarettes and cigarettes escaped tax, and with low disposable income.

Laffer, who has remained economic adviser to Donlad Trump, explained that consumers of legal cigarettes will not be able to absorb the multiple tax and price increases and will shift their consumption to cheap illicit cigarettes, making the task of repression against these illicit operators more and more difficult.

Taxes are bad for the economy and growth, DrLaffer said, adding that taxes hurt the country’s prosperity.

In high tax environments, tax exempt activities flourish. The illicit tobacco industry is flourishing and will continue to do so as long as taxes in Pakistan rise.

We see this in several sectors but maybe the revenue lost in this sector is the highest, he said.

He said that tobacco and drinks are taxed at the maximum level in Pakistan.

This year the government is collecting probably $ 150 billion in tobacco taxes, up from $ 137 billion last year.

Laffer said any increase in taxes will lead to an increase in illicit activity – if the FED increases, a drop in transactions will occur and more legal volumes will become illicit, so this is a loss for the GOP and the private sector. .

However, due to the halt in tax increases, legal tax volumes are back – this is the main reason government revenue from the tobacco industry is increasing.

Still not at the level it could be and that is why Pakistan should not increase taxes to ensure that legal volumes return and government revenues increase.

He concluded with a solution that there is a need to improve enforcement capacities in the country to combat illicit activities.

He suggested that in the short term until capacity catches up, taxes should remain stable (the increase in taxes will only increase the decrease).

The long-term focus should be on execution capacities.

Tax stamps on one of these capabilities, but we need more solutions like these.

It is a good starting point, but Pakistan cannot stop there.

He said implementation must be for all companies, not just the two main players – otherwise the GOP only increases the production costs of two companies, but with so many illicit players selling under the price of legal sale, the country is playing a losing game. .

However, in itself, this is not a complete solution – the political will to enforce and take action against illicit actors must also be present.

Before more innovative solutions are proposed and deployed, the political will to fight against the illegal must be present, added Laffer.

Copyright Business Recorder, 2021

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