Effective Enforcement of Illicit Trade: A Catalyst for Boosting Tax Revenue and Economic Growth
Illicit trade has far-reaching consequences, including significant tax revenue losses, hindering the formal sector’s growth, exploiting labor, violating environmental regulations, and funding criminal activities. Tackling these challenges is vital for ensuring economic stability and fostering growth.
A report by the Pakistan Business Council outlines several strategies to combat illicit trade effectively:
Control Foreign Currency Flow: Smuggling and under-invoicing are often fueled by foreign currency obtained through informal systems like Hawala. By incentivizing overseas Pakistanis to use formal banking channels for remittances, the flow of funds supporting these illicit activities can be curtailed.
Limit Cash Transactions: Cash transactions are a common tool for concealing turnover and profits within illicit supply chains. Enhancing transparency by reducing reliance on cash can significantly discourage illegal trade.
Broaden the Tax Base: An estimated 40% of goods sold in certain markets are illicit, including smuggled, counterfeit, and adulterated products. Although this sector accounts for 20% of GDP, it contributes only 1% to direct taxes. Expanding the tax net to include this sector is crucial for increasing tax revenue.
Reduce Incentives for Tax Evasion: High import duties, a GST rate of 18% on duty-paid value, Advance Income Tax, and Federal Excise Duty create strong incentives for tax evasion. Reducing these taxes and levies can decrease the motivation to evade taxes.
