Pakistan holds the world record for the highest per capita tea consumption. According to the Pakistan Food and Drink Report Q2 2010, every Pakistani drinks one kilogram of black tea every year. This could possibly be due to easy affordability of the low cost hot beverage. This ratio stands around 0.75 kilograms in other countries. Pakistan is also the third largest tea importer of the world, after Russia and United Kingdom.
The taxation scenario
Despite heavy taxation on the import of tea, Pakistan’s tea imports are likely to cross 200,000 tonnes in the current fiscal year due to continuously increasing demands stemming from demographic growth. Pakistan currently charges 10 per cent import duty, alongside a 15 per cent sales tax and an additional 10 per cent value-added tax and another two per cent income tax on imported tea. The flip side is that heavy taxes and import duties are attributed as the main factor for unabated tea smuggling from Afghanistan. The smuggling mafia is saving around Rs335 on every pack of 950 grams of tea in terms of accumulated taxes. Therefore, they are selling their booty at lower prices hurting the bonafide importers. It is estimated that by 2014, the import of tea is expected to increase 29.8 per cent to Rs67.69 billion. By 2014, the tea segment is expected to be 165 times greater than the local coffee segment, whereas tea prices in Pakistan have increased almost a dozen times since 1990-1991. The increase in tea price looks surprising as the rate in Kenya, the biggest supplier of tea to Pakistan has dropped by 25 to 50 cents per kilogram. The concept of green or white tea is not much familiar in Pakistan, where the demand of black tea dominates. The black tea category imported to Pakistan is called CTC, which is the cheapest quality obtained in tea processing. It is considered to be suitable for the price conscious market of the country. Major tea suppliers to Pakistan are Kenya, Sri Lanka, India, and Bangladesh. It is pertinent to note here that whenever there is a political dialogue for normalisation of trade relations between Pakistan and India; tea stake holders such as Kenya, Sri Lanka and Bangladesh are alerted. They are aware that Pakistan can get better quality of black tea at cheaper rates from India due to the latter’s geographic proximity. Tea is the most popular and cheapest beverage in Pakistan, but is increasingly facing competition from other drinks.
Tea: our favourite beverage
Tea was discovered around 5,000 years ago by the Chinese and is considered the oldest prepared beverage. Whatever its colour (black, green, yellow or white, depending on how it has been processed); tea can be produced from three main varieties: camellia sinensiss, camellia sinensis assamic and camellia seinensis cambodiensis. When a tea tree grows under natural conditions, it is evergreen and can reach a height of 10 to 15 meters, but when it is artificially cultivated in gardens (the name given to tea plantation worldwide), its height is artificially limited to one meter in order to facilitate the pickers. Tea trees are grown mainly in tropical and subtropical regions with humidity of 70 to 90 per cent. Rainfalls must be abundant and regularly distributed throughout the year, with a yearly average of 1,500 to 2,500 millimeters. Although efforts have been made to cultivate tea in the mountainous areas of Pakistan, the projects could not achieve the desired results possibly due to unfriendly climatic conditions. Tea leaves are sold mainly in tea bags in western countries and as entire leaves in the east. In the United States and the United Kingdom, instant tea, to which hot or cold water is added, is widely consumed, but globally this form of consumption remains negligible (2 to 3 per cent of world consumption). Tea is also used in medical and paramedical applications.
The nutritional value of tea is controversial as there are arguments on the both sides. However, the presence of caffeine in tea ingredients cannot be ignored. is a powerful stimulant, and can become habit forming to the point where attempts to stop consuming it can result in symptoms of withdrawal. Any beverage containing caffeine can cause sleeplessness. It acts as a diuretic, and can worsen incontinence. Caffeine is known to increase heart rate and blood pressure. Diabetics should minimise their consumption of caffeine as it increases blood sugar levels. Its use may also cause an increase in stomach acid, and can worsen ulcers.
Illegal tea from Afghanistan
The most startling fact about tea in Pakistan is that it is the commodity which involves the largest amount of smuggling from Afghanistan. These practices are not only hurting genuine tea importers but also depriving our national exchequer of billions of rupees in terms of import duties and taxes. Tea, as a basic commodity and staple food item for the poor must be relaxed from heavy taxation by the FBR. However, the authorities have their own misplaced priorities and justifications to boost revenue. It is sad to note that 45 per cent of the total tea demand in Pakistan is being met by illegally smuggled tea.
At this point, it is relevant to cite a World Bank report on taxation issues in Pakistan. The WB report claims that there is a revenue leakage of Rs600-800 billion annually at the FBR. The complacency of tax authorities has failed to curb black tea imports to Afghanistan under the pretext of Pak Afghan Transit Trade without taking into account the actual demand of tea in Afghanistan. According to reports, Afghanistan imports black tea and blends it with cheap quality tea before packing and smuggling it in bulk to Pakistani markets. The smuggled stock is cheaper due to their ‘duty-free’ back-door entry and legal importers are unable to compete with them due to their higher cost of imports. The results are quite terrible. Failure of the government to address the issue by reducing duties for tea importers has led all multinational and national brands of tea to a verge of collapse. They have clearly told the government about having no option but closing down, if tea smuggling was not controlled.
The willful negligence of tax authorities has resulted in a revenue loss of Rs13 billion to the government, as only 87,000 tonnes of tea were legally imported out of a total domestic demand of 200,000 tonnes during the last fiscal year. During the period, under Afghan Transit Trade Agreement 110,000 tonnes of tea were imported out of which 87,000 tonnes made their way into the Pakistani market. FBR sources say that import duty and sales tax on tea amount to Rs116,200 per tonne. Revenue collection on legal tea imports was Rs10.1 billion during the last fiscal year. The massive taxation on a consumer product of daily use has forced customers to look for cheap alternates. Smugglers enjoy a massive difference of Rs90,000 per tonne after bribing officials with an amount of Rs25,000 to 30,000 per tonne. They provide cheap alternates by mixing unhealthy materials in their non-branded tea stock.
Kenya: the largest tea
importer to Pakistan
The most interesting part of tea smuggling is that Kenya, the biggest exporter of tea to Pakistan is lobbying through its diplomatic channels to convince Pakistan to reduce duty on tea. “There is very little we can do in terms of regulating what volume goes into Afghanistan because it is an open market system and everyone has a right to buy from anyone but we have resolved to continue lobbying Pakistan to lower import duty on tea that enters its market. This will deny smugglers the incentive to engage in the malpractice,” Tea Board of Kenya (TBK) Managing Director, Sicily Kariuki told Business Daily based in Nairobi.
Kenyan authorities have serious concerns that their tea exports to Afghanistan grew by the largest margin of 30 per cent recently but sales dropped in other traditional export markets such as Egypt, the UK and Pakistan by 18, seven and 13 per cent respectively. “Such improved sales (to Afghanistan) are good for us but we are concerned about the possible side effects in the long term. Such smuggling comes alongside adulteration of the original product that could see us lose customers after a while because nobody would want compromised quality,” Mrs Kariuki said. There is a simple solution to this complex problem. Instead of benefitting smuggling mafia, it is better to benefit the consumers by reducing tariffs on tea imports in the country. This will surely close the door of tea smuggling into Pakistan. If is not feasible, the only available option is to re-organise the FBR for the proper monitoring of Afghan Transit Trade Agreement that is the root cause of smuggling which is not limited to tea alone.
