Pakistan losing billions in revenues due to sale of smuggled cigarettes

Pakistan losing billions in revenues due to sale of smuggled cigarettes

ISLAMABAD: Pakistan is losing billions of rupees in the annual excise revenue due to large scale and organised smuggling of internationally renowned brands into Pakistan via Afghanistan.

Reports estimate an annual loss in revenue of more than Rs. 24 billion, due to the “Illicit Cigarette Trade”. The sale of smuggled brands like Benson & Hedges, Dunhill, Marlboro, Pine etc. are proliferating among the country’s smokers especially the youth. While big tobacco firms continue to grow their revenues, Pakistan is suffering from a major economic loss due to such illicit activities.

These smuggled brands are wreaking havoc on the Pakistani economy and can easily be identified as they are being sold in the market without any pictorial health warning and do not have the “Made in Pakistan” stamp on them, which is mandatory by Pakistani Law, or these brands will have warnings in foreign languages.

As per the Framework Alliance Report of 2010, of the WHO associates, smuggled cigarettes are sold in Pakistan as a means of entering the closed or high tax-levied markets. These smuggled brands sell as low as Rs. 20 to as high as Rs. 160.

As per the report, the tobacco smuggling network operates around the Afghan Transit Trade (ATT) Agreement, which was signed between the landlocked country of Afghanistan and Pakistan in 1965 with a view to provide Afghanistan with port access. As per the agreement, goods intended for Afghanistan are allowed to be transported from the ports of Karachi and Bin Qasim, in south Pakistan, to Afghanistan via the northern border towns of Torkham in the KP and Chaman in Balochistan.

This facility provided to the Afghanistan by the Pakistani government is being misused as the goods destined for Afghanistan are either being pilfered inside Pakistan while on their way to the border or are being smuggled back into the country after reaching Torkham or Spin Baldak in Afghanistan.

In 1996, the Pakistani government banned the import of tobacco along with 16 other items to Afghanistan via the ATT. However, as per agreed customs procedures under the 1965 agreement, goods declared by an Afghan importer as being meant for transit to Afghanistan, are not checked or verified at the port of Karachi, in Pakistan.

Other than that, there is no scanning facility available at the ports that can thoroughly check large containers carrying billions of rupees worth of transit goods.

As stated in the Frameworks Alliance Report of 2010, there are reports of goods being transported under the ATT agreement being pilfered before they cross into Afghanistan.

Customs officials in Pakistan are of the view that measures taken by them such as comprehensive field paper work, sealing of consigned goods, shipment of transit goods in special railway wagons and checking shipment invoices at several points eliminate chances for en route diversions. But it is a fact that despite these elaborate procedures, en route smuggling from the ATT is not inconsequential.

These smuggled brands, mostly of international big tobacco companies like the British American Tobacco (BAT) and Phillip Morris International (PMI), are sold in Karkhano, the main market and the nerve centre of contraband trade, is situated in the western outskirts of Peshawar.

Most foreign brand cigarettes are sold at the Karkhano market. Reportedly, the tobacco companies also influence the regulation of supply and make demands in their favour.

As per report of the Framework Alliance, “The overproduction of tobacco, systematically promoted by tobacco companies, leads to a competition among the growers. The growers with small land holdings get sidelined and are forced to sell their crops at lower prices due to the pressure from MNCs”.

A formal letter by the Anjuman-e- Kashtkaran Tobacco (the growers body) in KP, accused the regulatory body of favouring the tobacco companies while fixing the prices and dealing with other matters. Already Pakistani farmers receive the least amount money in South Asia for their best quality crop due to the monopolistic character of the MNC.

As per the report there is a big question mark whether the proceeds from cigarette smuggling are funding terrorism in Pakistan. The report states that smuggling involves middlemen who ensure safe and timely delivery of goods at an agreed location. Middlemen bear the responsibility for bribing the officials or any mafia that may come in the way of transportation. It is anticipated that fees for protection and passage reach the militants who control the smuggling routes.The Torkham-Peshawar route in Khyber agency was reportedly controlled by the banned militant organisation, Lashkar -e-Islami MangalBagh, which charged a passage fee for goods passing through its territory. Now the route is controlled by law enforcement agencies. But protection money also needs to be paid to a local warlord along the Spin Baldak-Chaman route.

UNODC estimates that the Taliban armed opposition group has generated an annual revenue ranging between US$ 200 million and Rs 300 million via a “surcharge” levied on the illicit drug trade.

The Pakistan Tobacco Company (BAT) and Phillip Morris have more than 80 per cent share of the country’s cigarette market. The report alleges that these companies are cleverly exploiting unbridled smuggling and the counterfeit market only by crying foul. So far they have not launched any campaign to discourage tobacco smuggling or create awareness about counterfeit cigarettes that can affect their market share. In some ways, these illegal activities must be proving beneficial to the companies in terms of their promoting of their own brands and inducing a demand for cigarettes among various income groups which they could eventually capitalise upon.

Both Phillip Morris and BAT have a history of involvement in international smuggling. Their role in cigarette smuggling in Pakistan therefore needs to be examined as such activities are causing harm amounting to billions of rupees to the Pakistani exchequer.