ISLAMABAD: While the government has already presented the budget for 2023-24 in the assembly, federal ministers emphasized the government’s determination to tackle tax evasion in various sectors.
Addressing a briefing session organized by IPSOS for parliamentarians, Sardar Ayaz Sadiq, the federal minister for economic affairs, claimed that tax evasion in various important sectors was a major issue. The briefing session focused on the prevalence of tax evasion in five sectors of Pakistan.
Highlighting the detrimental effects of tax evasion, Sardar Ayaz Sadiq expressed concern over the significant losses suffered by the domestic industry and employment opportunities due to smuggling. This situation leads to increased dependency on foreign goods, creating an endless cycle of economic challenges. He specifically mentioned tax evasion in the real estate and tobacco sectors as major contributors to the problem. Estimates indicate that the tobacco industry’s annual tax potential for the fiscal year 2023-24 exceeds Rs500 billion, but more than 50% of this amount is lost to a powerful illicit tobacco sector.
The minister also highlighted the negative impact of the decline in large-scale manufacturing, as reported by the Pakistan Bureau of Statistics. This decline poses long-term threats to the sustainability of legitimate industries, employment rates, and exports. While acknowledging the importance of the real estate sector, Sardar Ayaz Sadiq stressed the need to control the uncontrolled expansion of housing societies on agricultural land.
He asserted that the economy would improve and Pakistan would be viewed as a business-friendly nation only when efforts are made to create a level playing field for fair market competition. Tax harmonization was identified as a crucial factor for business growth.
Qamar Zaman Kaira, advisor to the Prime Minister on Kashmir Affairs & GB, highlighted the massive loss of approximately one trillion rupees annually due to tax evasion in Pakistan. He emphasized that controlling tax leakages through strict law enforcement and bringing the black economy into the tax net could help Pakistan avoid relying on foreign funding.
Kaira pointed out that the real estate and tobacco sectors alone accounted for approximately 750 billion rupees in tax evasion. He stressed that illegal trade not only poses a threat to legitimate businesses but also undermines the sovereignty of the country and jeopardizes employment and livelihoods. He mentioned the concern of tax evasion in the cigarette industry in Azad Jammu and Kashmir (AJK) and the collaborative efforts with AJK authorities to implement a track and trace system in the industry.
During the briefing, Abdul Sattar Babar, CEO of IPSOS, presented the latest study on tax evasion in five sectors: real estate, tobacco, tyres and auto lubricants, pharmaceuticals, and tea. The study revealed that tax evasion in these sectors amounts to a staggering Rs. 956 billion. The real estate sector alone accounts for an annual tax evasion of Rs. 500 billion, while the tobacco sector contributes around Rs. 240 billion in tax losses. Tax evasion in the tyres and auto lubricants sector stands at Rs. 106 billion, and the pharmaceutical industry records losses of Rs. 65 billion annually. The tea sector also suffers an annual tax loss of Rs. 45 billion.
The IPSOS report suggested that if tax evasion in these five sectors could be curbed, the collected amount of over Rs956 billion could cover the entire cost of the Public Sector Development Program (PSDP). It could also fulfill financial needs of the Benazir Income Support Program (BISP) and significantly enhance the Federal Education Budget. The funds could be allocated to infrastructure projects such as the construction of the Mohmand dam and motorways, as well as ensuring access to clean drinking water for the entire population.
Parliamentarians, including members of the National Assembly and Senate, stressed the importance for collaborative efforts to find solutions and create a secure environment for businesses to thrive. They emphasized the need for collective action and a united front in eradicating tax evasion, ensuring a fair and transparent taxation system for the country’s progress.
