[Intl-tobacco] US focus on Pakistan cig smuggling before FTA

[Robert Weissman]

<http://www.pakistanlink.com/headlines/Nov03/01/10.html>

US demands Intellectual Property Rights enforcement before FTA
Pakistan Link
November 3, 2003


LAHORE (NNI): Enforcement of Intellectual Property Rights by Pakistan is
one of the main demand of United States for free trade agreement (FTA)
between two countries. Pirated software and smuggled cigarettes are the
main concern of US officials.


          The US officials echoed this concern in recent statements
after their genuine efforts failed to attract American companies to
invest in Pakistan.


          The feedback they obtained from the US companies already
operating in the country was absence of level playing field for genuine
investors. They cited the continued availability of non-duty paid
products and fakes in the local market as a major worry for the local
and foreign businesspersons.


          Businesses in Pakistan, local as well as multinationals, have
continued to complain that Duty Not Paid (DNP) products that include
both smuggled and produced locally but supplied in the market without
paying levies deprive them of their legitimate market share.


          They said that the only sin they committed was the payment of
all government levies that smuggler do not pay. "These practices were
restricting the legitimate price increases in the local markets was
making it very difficult for the legitimate business sector to market
its brands against the duty evaded-consignments", Market analyst Shafiq
Husain added.


          Some of the major business concerns like petroleum products
especially lubricants, computer software and the cigarette manufacturers
were the worst hit areas where the evaders are harvesting bumper returns
by commercially impairing the ethical manufactures and negatively
affecting the government's revenue generating capabilities. Recently
another surge has been witnessed in the household electronics sector
too, where cheap smuggled items are seriously challenging the local manufacturers.


          The actual impact of the total duty evaded can?x2019;t be
ascertained, as the practice is widespread. Government though does not
lose any revenue on sales of pirated software as computer parts and
accessories are exempt from all government duties. There are though some
rough estimates of tax evasion in cigarettes. The cigarette
manufacturing industry being the major contributor of Central Excise
Duty (35 per cent) to the government exchequer has traditionally been
the worst hit by the phenomenon of tax evasion.


          While the duties on most of the manufactured and imported
items have been drastically reduced in recent years but cigarettes and
petroleum products are still subjected to high taxes. Petroleum products
until a year back were monopolised by the state. The new entrants are
finding it hard to exploit the full potential of the market due to
excessive smuggling. They have now started airing their concern.


          Legitimate cigarette manufacturers have often sought of the
government to fix a minimum retail price of cigarettes to check the
menace of tax and duty evasion, which are not only hurting the
government revenue but adversely impacting the profitability of the tax
paying businesses.


          Tobacco manufacturers evading taxes have the third major share
in the local cigarette market of around 66 billion sticks. Two main
manufacturing companies share between them around 50 billion sticks
production while a number of manufacturers who evade taxes and duties
produce around 14 billion sticks of the rest of production to be the
third major player in the tobacco market.


          The tax evasion leaves those manufacturers in a position to
flood the market with substandard tobacco products at throw away prices
not only jeopardising the health of the youth but depriving the
government of precious revenue and hurting the legitimate manufacturers.
The practice is also damaging the investment climate in the industry.


          Reports available with the Central Board of Revenue (CBR)
claim that concentration of counterfeiting and evasion was mostly in
NWFP sometime back but the tax evading manufacturers have now
repositioned their operations in Azad Jammu and Kashmir and Chakwal and
Bhawalnagar districts of Punjab. They said that around 10 to 12 such
cigarette-manufacturing units are operating in these areas.


          An executive of a tobacco company on the condition of
anonymity said the Central Board of Revenue has been empowered by the
government to fix the minimum price of any goods or class of goods for
charging excise duty. He said the revenue board must act upon in this
case to check tax and duty evasion by fixing a minimum retail price of
cigarettes to bring tax and duty evading cigarette manufacturers into
the tax net.


          Senior Market analyst Dr Shahid Zia said no investor either
local or foreign would risk his investment in the country if the state
cannot provide them protection from smugglers and tax evaders who freely
sell their products without payment of government levies that documented
businessmen pay.


          He said this institution weakness is the main reason that no
country in the world has signed a free trade agreement with Pakistan. He
said Pakistan in fact is only one of the four countries in the world who
have not signed any free trade agreement.