By Zahid Gishkori, Mujahid Hussain, and Abobakar Khan
ISLAMABAD: Azad Jammu and Kashmir has been embroiled in political, social, and economic turmoil for several months. A few months ago, the people of the region took to the streets to protest against high electricity prices, eventually forcing the government to accept their demands. However, the situation regarding the industrial sector remains uncertain.
Another crisis has emerged, adding to the ongoing challenges. This crisis began seven years ago, and new tax policies, tax evasion, corruption, and mismanagement have exacerbated the situation, resulting in 80 per cent of industries in Azad Jammu and Kashmir being completely shut down or relocated outside the region.
HUM Investigates conducted inquiries in several cities of Azad Jammu and Kashmir to figure out the devastation caused to the industrial sector and the resultant rising unemployment.
During these investigations, HUM Investigates spoke to government officials and industrialists about the current crisis.
Industrialists claimed that in the industrial city of Mirpur, out of 220 small and large industrial units, 150 have either been shut down or relocated to Rawalpindi, Rohtas, Kallar Kahar, Jehlum, Lahore, Mardan, Swabi, and other cities of Pakistan.
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According to the industrialists, they decided to move their factories out of Azad Jammu and Kashmir due to the government’s new tax policy. Government officials argue that industries were engaging in widespread tax evasion, and the closure or relocation of factories was a result of the crackdown on this tax evasion. Government representatives also maintain that tax evasion is the main cause of this crisis.
They claim that industrialists, especially in the cigarette industry, are evading around Rs200 billion in taxes annually. Businessmen and the commercial sector had enjoyed the benefits of a tax-free zone for many years but they are now unwilling to pay the newly imposed taxes, they said.
They said that Azad Jammu and Kashmir’s status as a tax-free zone made it a haven for tax evaders. Authorities claim that several cigarette companies, some traders dealing in palm oil, and others in the tea business are annually evading taxes worth Rs160 billion from the regional government.
The Azad Jammu and Kashmir government is attempting to collect around Rs50 billion annually from industrialists, businessmen, and the general public in taxes. A
mong the alleged tax evaders are several prominent individuals who were either part of the local government or politicians and businessmen operating from various cities in Pakistan.
On the other hand, traders argue that they can no longer conduct business in Azad Jammu and Kashmir as the government has offered no relief or any important guarantees for the protection of businesses. Additionally, the government has initiated a crackdown on industrialists under the pretext of tax evasion.
The story behind the crisis in the cigarette industry in Mirpur, tax evasion, and the ongoing crackdown is one of the issues that HUM Investigates tried to highlight.
During the visit to some factories, the HUM Investigates found that although these factories appeared to be small units, their owners claimed they were paying millions of rupees in taxes every month, yet the Kashmir administration is not allowing them to operate.
Local authorities also claimed that these units were sending billions of rupees worth of cigarette products across the country but showed a downturn in their filings.
Meanwhile, cigarette industry businessmen argued that the government collects nearly Rs30 billion annually in sales tax from them.
Additionally, the foam industry in Mirpur is still considered the largest industry in the region, with those involved claiming that this industry continues to operate vigorously.
However, the cigarette industry is facing the most significant challenges in the current climate, while the mobile phone industry, after completing its initial five-year tax exemption, has since relocated.
Azad Jammu and Kashmir Prime Minister Chaudhry Anwar-ul-Haq takes a stern position regarding the cigarette industry and has raised several questions.
He said sales tax and excise tax charge Rs120 for a single packet of cigarettes, how is it possible that the tobacco company sells that in Rs70 to Rs80 in the market?
The cigarette industry is fundamentally facing a severe crisis, and its future appears uncertain given the current circumstances. The chief administrative officer of the Walton Cigarette Company, Syed Omar Farooq, claimed that despite paying billions in taxes, they were being treated unfairly.
Aside from the cigarette industry, there is a common perception that the palm oil industry in Azad Jammu and Kashmir benefits from lower import tax rates compared to Pakistan, leading many industrialists to bring in raw materials, while the actual manufacturing occurs in other areas. However, the details of such technical frauds are not provided by the bureaucracy, nor are the authorities fully informed about these practices. A statement is simply issued claiming significant tax fraud in this regard.
The ongoing industrial crisis in Azad Jammu and Kashmir does not appear to be ending soon, as both sides remain firmly entrenched in their positions. If the Azad Jammu and Kashmir government changes its stance regarding industrial development, the region may face a new financial crisis.
During HUM Investigates, it was also discovered that the cigarette industry’s machinery belongs to an older generation, with many units still operating with equipment over 50 years old.
Note: Nauman Quddus and Tariq Wasim also contributed to this report