Burden of illegitimate businesses

LAHORE: Large-scale smuggling and under-invoicing can have significant negative impacts on government revenues and local industries. These illicit practices distort the economy and create unfair competition, ultimately harming both the government and legitimate businesses.

Every Pakistani government strongly condemned these illicit practices but unfortunately the menaces increased with every passing day. Most people have no idea about the havoc these practices caused to the economy. It is not only tax evasion but it transfers jobs from Pakistan abroad and marginalises local industries that pay full taxes.

This time around, the assurance to eliminate these corrupt practices has come from the army chief. The army monitors borders and has the ability to reduce smuggling, but smuggled goods that enter Pakistan with the help of custom officials from seaports and airports would require much deeper efforts. Under-invoicing however is conducted with the connivance of custom officials only. This would require a creditable third party to curb this practice.

Smugglers and those who resort to under-invoicing, avoid paying import duties, taxes, and other fees that legitimate businesses are required to pay. They may pay some rent to the concerned authorities to carry out these activities. This results in a direct loss of government revenue. Reduced government revenue can lead to budget deficits or force the government to raise taxes elsewhere, placing additional financial burdens on citizens and businesses.

Smuggled and under-invoiced goods are typically sold at lower prices because they bypass import duties and taxes. This creates an unfair advantage for these goods over legally imported or locally produced goods. Legal businesses struggle to compete with the lower-priced smuggled or under-invoiced goods, potentially leading to layoffs, business closures, and reduced economic growth.

Under-invoicing and smuggling discourage foreign and domestic investment because they undermine the rule of law and create an uncertain business environment. If local industries cannot compete due to unfair competition, the economy misses out on the potential growth, job creation, and technological advancements these industries could offer.

There is a possibility that smuggled goods may not adhere to safety, health, or quality standards, putting consumers at risk. Smuggled televisions or electronic gadgets for instance are openly sold in local markets. Sellers do not give any guarantee for the set once it has been tested at their premises. Smuggled medicines also do not go through regulatory inspections, thus the consumers may take substandard drugs. Other substandard products are also entering the market. Smuggling and under-invoicing are often associated with corruption and organised crime. This further erodes the rule of law and can have broader societal consequences.

When citizens perceive that the government is unable or unwilling to combat smuggling and under-invoicing effectively, it can erode public trust and confidence in the government’s ability to govern and protect the economy.

To combat these issues, governments typically employ a range of strategies, including customs enforcement, trade audits, international cooperation, and the implementation of technology-based tracking systems. Unfortunately, these strategies have failed in Pakistan because vested interests in the system ensure that no strategy works.

Reducing smuggling and under-invoicing is not only essential for government revenues but also for creating a fair and competitive business environment that promotes economic growth and stability. The economy would continue to suffer if these two major issues are not adequately addressed.

It is unfortunate that we smuggle in goods that are produced in Pakistan and we smuggle out our commodities like sugar and wheat to foreign countries. Moreover, the smugglers also smuggle dollars to Afghanistan on a daily basis. All such activities must be curbed.