Ineffective writ of the government has resulted in the flourishing of the counterfeit and smuggled tobacco products’ business, while the evasion of duties and taxes by illegal cigarette manufacturers has cost the national exchequer Rs 55 billion during the last seven years alone.
Well-placed sources said the government was well aware of the fact that the illegitimate industry was eating up the country’s economy, however, authorities were yet to wake up to the effects of this growing menace. The sources said the total tax loss to the government from the illegitimate cigarette industry had been estimated at Rs 10 billion, including tax evasion worth Rs 7 billion, Rs 1billion in counterfeiting and Rs 2 billion in smuggling in the financial year 2010-2011.
According to available research data, tax evasion by the cigarette industry cost the government Rs 6.5 billion in 2010, Rs 6.5 billion in 2009, Rs 6 billion in 2008, Rs 5.59 billion in 2007, Rs 5.48 billion in 2006 and Rs 4.1 billion in 2005. Counterfeiting in the cigarette industry cost the government Rs 1 billion in 2010, Rs 1 billion in 2009, Rs 0.25 billion in 2008, Rs 0.24 billion in 2007,Rs 0.1 billion in 2006 and Rs 0.48 billion in 2005.
Tobacco smuggling cost the government Rs 2 billion in 2010, Rs 1.5 billion in 2009, Rs 1.22 billion in 2008, Rs 1.34 billion in 2007, Rs 1.22 billion in 2006 and Rs 1.4 billion in 2005. The sources said the total loss to the AJK government due to tax evasion was recorded at Rs 3 billion in 2010-11. The industry’s contribution to the national exchequer during the financial year 2010-11 remained Rs 58.50 billion, Rs 2.50 billion more than the revenue earned during 2009-10.
Two major cigarette manufacturers contributed Rs 58 billion, while only 0.5 billion was contributed by other cigarette manufactures of the country. This difference also clearly depicts the volume of tax evasion in the sector. Tobacco smuggling, counterfeiting and tax evasion are the problems that have existed for legitimate manufacturers, government agencies and its users since long. Whenever a tobacco product is counterfeited or smuggled, it poses serious risks to its users.
Government also suffers as illegitimate products escape taxation, because such products are either smuggled or counterfeited and are not documented by the government agencies. Legitimate manufacturers also suffer due to revenue loss and hampered brand image.
