Cover Story
The menace of smuggling

Smuggling has become a routine part of all economic activities in Pakistan

By Syed M. Aslam
Dec 20 - 26, 1999

Smuggling harms a national economy, any national economy, in many ways. It undermines the local industry, discourages legal imports and reduces the volume of revenues collected from duties and levies at the import stage and taxes collected at the retail stage.

Shop's shelves across Pakistan are flooded with smuggled goods of any and all descriptions. The markets of Pakistani towns on the borders of Afghanistan as well as those located in such far-off urban centres as Karachi, Lahore and federal capital Islamabad are flooded with smuggled goods. Even the rural areas have not remained untouched by the flow of varieties of daily-use smuggled goods.

Smuggled goods are not only easily available but are also appreciated by the bulk of buyers who prefer anything which is foreign. The situation has become so bad that smuggled products such as many premium varieties of cigarettes which are either locally produced or being legally imported have to face a stiff competition from their smuggled counterparts.

Similarly, a number of medicines produced in neighbouring India by multinational pharmaceutical companies are being smuggled into the country to undermine the same products produced by the same multinational in Pakistan due to a huge price difference. Contrary to the popular belief that smuggling helps provide such quality products at much lower prices at the benefit of the users is however remains untrue in Pakistan. This is primarily due to the fact that though the prices of such medicines are one-tenth in India than in Pakistan are nevertheless are sold by the unscrupulous elements at par with the going prices in Pakistan. This is due to the fact that hardly ever a buyer look at the packing to note that the product he has just bought was made in the neighbouring country.

While the menace of smuggling has left hardly any sector untouched in Pakistan there are certain items which are more smuggling-prone than the others. Electronics items such as television, VCR, VCP, hi-fis; household items such as blenders, mixers, juicers, radio cassette players, air conditioners, refrigerators, irons; garments, cloth and a wide range of toileteries, perfumes, cosmetics are some of the high smuggling-prone items. One can easily buy a range of known smuggled cigarettes, perfumes, electrical and electronic items, and even shoe polish.

In short, smuggling has become a routine part of all economic activities in Pakistan which hardly raises any eye brows nor stirs the slightest fear of the law. Instead, a smuggled good is proudly flaunted. The immediate-past chairman of SITE, the biggest industrial area of Pakistan, has lamented to PAGE that "Our markets have become the warehouses of foreign goods as our national psyche prefers all goods of foreign."

Tea

According to Hanif Janoo, the chairman of Pakistan Tea Association, about 20 per cent or 25 million kilogram of the total annual tea demand of 135 million kilogram is met by the smuggled tea.

Importers blame the high duty— 25 per cent— which alongwith sales and other taxes adds up to 58 per cent, as the primary cause of huge tea smuggling . While the import duty on tea has been gradually reduced during last few years many feel it is still on the high side to provide smugglers with the required incentive to keep pushing tea into the country.

Automobiles

Even the automobiles are not left untouched by the smuggling regime in Pakistan. According to an official estimate over 25,000 smuggled vehicles, a majority of them high-priced station wagons and four-wheel drives are present in the country most of which are not registered. Last week the Central Board of Revenue, the apex tax collecting agency, extended the deadline for the legalisation of non-duty paid smuggled vehicles by January 31 next year. The owners are asked to legalise such vehicles by paying the assessed duty and taxes without imposition of any fine. According to CBR some 3,500 smuggled cars/jeeps were legalised in May/June last year while another 4,000 heavy transport vehicles were legalised during the amnesty campaign till a few months ago.

Tyres

Tyres, particularly the truck and bus variety, have also being smuggled into the country. According to Muhammad Aslam, a Karachi based tyre importer, some 770,000 truck and bus tyres are being smuggled into Pakistan annually which cause a revenue loss to the government of a huge Rs 2.1 billion.

Over the years, smuggling has become a parallel economic regime in Pakistan which continue to erode the very fabric of the overall national economy. It has weakened numerous industries, some more severely than others. Furthermore, it is not only restricted to flow of the goods into the country but also the flow of such commodities out of the country as wheat, the import of which is costs the country a huge amount of precious foreign exchange and fertiliser the bulk of which is produced within the country.

The absence of statistics make it hard to exactly calculate the volume of loss to the economy in terms of revenue loss from the import duties and levies as well as other taxes due to loss in production. However, one thing is certain: the smuggling is costing the national economy billions in huge revenue loss to undermine the very foundation of almost all industrial activity and legal imports. It is also resulting in spending huge volume of foreign exchange on such basic commodity as wheat, a huge quantity of which finds its way out of the country illegally.

To highlight how badly the menace of smuggling is underminging the national economy, PAGE talked to Muhammad Aslam on the impact of huge revenue loss of Rs 2.1 billion from the smuggling of truck and bus tyres into the country. Putting the truck and bus population in Pakistan at 161,000, Aslam said that it comprises 97,500 trucks, 58,500 buses and 5,100 oil trucks.

Buses are fitted with seven tyres, trucks with 7,10 and 22 tyres depending upon the make and model. As the estimated life of the tyre of these commercial vehicles is between six to nine months under normal operating conditions and based on the usage ratio of seven tyre per vehicle, the annual demand of truck and bus tyres in Pakistan comes to around 1,058,000 annually.

Local production and imports are only able to meet 19 per cent or 200,000 units and 8.2 per cent or 88,000 units respectively of the total annual demand of 1,058,000 truck and bus tyres. On the other hand, over 72 per cent of the local annual demand for 770,000 tyres are met by the smuggled tyres.

Of these 770,000 bus and truck tyres 39 per cent or 300,000 are of Indian and Japanese origin each while the rest of the 22 per cent or 170,000 tyres are from the other origins. Aslam said that massive smuggling of truck and bus tyre, an obviously big item, is not possible without the connivance of various government agencies which have a cut of the illegal but profitable trade. Putting the expenses at Rs 750 per tyre— Rs 250 from border to the Quetta city in the Balochistan province or to Peshawar or Miran Shah in the North West Frontier province, the two major routes, and Rs 500 from wholesale to the retail markets in various cities, he said that each retail shop pays anywhere from Rs 3,000 to Rs 6,000 per month to various agencies as protection money. The unholy alliance between hundreds of truck and bus tyre retail outlets and the various agencies adds up to a huge Rs 600 million at the expense of the exchequers. Aslam put the net annual revenue loss at Rs 2.1 billion from this singular smuggling activity per year.

Aslam blamed the high duty on the import of truck and bus tyres as the major reason for the huge smuggling. He suggested that the import duty of 15 per cent should be abolished while the sales tax of 15 per cent can be maintained to let importers have an edge over the smuggled tyres. He also proposed improving the administrative and physical measures to stop the movement of tyres from borders to retail points.