Pakistan’s economic turmoil is exacerbated by a sharp rise in illicit trade, undermining both revenue collection and public health. As the government seeks a $7 billion loan from the International Monetary Fund (IMF), experts suggest that addressing rampant smuggling and tax evasion should take priority over imposing additional taxes on citizen.
Recent analyses reveal that illicit trade drains Pakistan of over 2 trillion rupees (about $7 billion) each year. Major contributors to this loss include the real estate, pharmaceuticals, tobacco, tyres and lubricants, and tea sectors.
The real estate sector alone is responsible for approximately Rs 500 billion in annual tax evasion. The illicit tobacco trade causes losses of Rs 310 billion, while tyres and lubricants contribute Rs 106 billion in evaded taxes. The pharmaceutical sector sees Rs 65 billion in annual losses, and smuggling via the Afghan Transit Trade is estimated to cost Rs 1,000 billion in lost import-related tax revenue.
Finance Minister Muhammad Aurangzeb has suggested that Pakistan’s reliance on IMF loans could persist unless tax rates are increased. However, macroeconomic analyst Osama Siddiqui argues that simply raising taxes is not a viable long-term solution. He advocates for a comprehensive approach to tackling illicit trade, which should include improved border controls, stricter regulations, and advanced monitoring technologies.
To address this issue, Osama calls for rigorous enforcement of the Track and Trace (T&T) system across various industries. The T&T system, if properly implemented, could generate more than Rs 550 billion annually by ensuring compliance with tax regulations. However, its uneven application has allowed illicit trade to thrive.
“Pakistan’s path to economic stability requires not just securing international loans but taking decisive action against illicit trade. By tackling tax evasion and smuggling, the government can restore fiscal health, enhance public safety, and pave the way for a more stable economic future,” he concluded.
