Islamabad, June 7, 2023: An international research body, Ipsos, has uncovered a staggering amount of Rs956 billion annual in tax evasion within five key sectors of Pakistan. The report shed light on tax evasion occurring in the real estate, tea, cigarette, tires and oil lubricants, and pharmaceutical industries.
In the real estate sector, the report reveals tax evasion amounting to Rs500 billion, while the cigarette industry accounts for Rs240 billion in lost revenue. Similarly, the tea sector witnesses tax evasion of Rs45 billion, and the pharmaceutical sector suffers a loss of Rs65 billion. Additionally, the tires and oil lubricants sector experiences tax evasion totaling Rs106 billion.
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Ashfaq Tola, the Minister of State and Chairman of Reforms and Resource Mobilization, emphasized the significance of tackling tax evasion and smuggling, as they hinder economic progress. During the launch of Ipsos’ research report on tax evasion in Pakistan, Tola highlighted the need for automation and financial inclusion to achieve economic goals and improve overall economic conditions.
The research report by Ipsos discloses an annual loss of Rs956 billion due to tax evasion solely within these five sectors in Pakistan. The revelation underscores the pressing issue of tax evasion in the country and its detrimental impact on the national exchequer.
According to the report, tax evasion in the real estate sector is primarily attributed to weak legislation, transaction manipulation, and cash dealings. With proper documentation and law enforcement, an estimated additional Rs500 billion could be collected in tax revenue from the real estate sector.
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The report also highlights the alarming extent of tax evasion in the cigarette industry, leading to an annual loss of Rs240 billion. Smuggled cigarettes hold a significant market share, accounting for 38% of the total cigarette market in Pakistan, with smuggled brands claiming 10% of the market.
Ipsos’ research indicates that illegal trade in cigarettes has surged to encompass 48% of the total market, amounting to approximately Rs40 billion worth of illicit cigarette sales annually in Pakistan.
Regarding tires, the report reveals that 65% of the market comprises illegal or smuggled tires, while only 20% is domestically produced and 15% is legally imported. The Federal Board of Revenue (FBR) reported that the legal tire industry contributed Rs25 billion in tax revenue in 2022. However, an underreporting of 25% of tire income results in an annual loss of Rs50 billion for the government.
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In the lubricants industry, which paid Rs187 billion in taxes during the previous fiscal year, 70% operates legally, while the remaining 30% functions in the illegal market. Controlling illegal lubricant trade has the potential to bring an additional Rs56 billion to the government’s treasury. Overall, tax evasion in the tire and auto lubricants sector amounts to Rs106 billion.
The research report further reveals that the pharmaceutical sector incurs an annual loss of approximately Rs60 to 65 billion to the national exchequer due to the sale of illegal medicines. The failure of relevant institutions to enforce laws against unregistered and unlicensed pharmacies is identified as a major contributing factor. In the tea sector, tax evasion is estimated at Rs45 billion annually.
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According to Ipsos, large-scale tea vendors meet around 55 to 60% of the country’s tea demand, while smaller traders cater to the remaining 40 to 45%.
The report concludes with recommendations stating that curbing tax evasion in these five sectors alone, amounting to over Rs956 billion, can cover the total cost of Pakistan’s Public Sector Development Program. Moreover, this sum can provide complete financial support for the Unprecedented Income Support Program. Additionally, preventing tax theft in these sectors could result in a tenfold increase in the federal education budget.
