A CONTAINER allegedly unloading smuggled soap at a major retail chain in Karachi was recently intercepted on the complaint of a multinational company.

The details of the raid, the value of merchandise involved and its origin and entry point, the estimated duty loss to the exchequer and other related details were held back by the parties involved, though all sides confirmed that the incident did take place.

Meanwhile, in the largest wholesale market of the country in Karachi, counterfeit popular cosmetics and personal care items — some even differentiated according to first, second and third copies — are stocked and traded openly.

“We are dependent on the retail sector and cannot afford to annoy a lobby that has the power to make or break a firm,” says a senior MNC manager

The congested narrow lanes of Bolton Market on M.A. Jinnah Road may not be an ideal place for the faint-hearted. The impunity of traders dealing in counterfeit items speaks volumes about the administration’s attitude towards the activity. The price differential in almost all toiletries (compared to their retail rates) was higher than normal. The availability of the same item at three different prices in the same shop was also interesting and puzzling.

From soaps to facial creams and powders to skin and hair care items, colour cosmetics and deodorants, you can get virtually everything for cheap, but there is no guarantee of the product’s quality. At one shop, there were drums full of coloured liquid (hand wash) and empty plastic bottles with fancy names and stylish dispensers.

Meanwhile, people active in the field mentioned several points in major cities where genuine branded personal care items and cosmetics are available for quality-conscious consumers.

A dealer who keeps stocks at a house in a middle-class residential area in Karachi deals only with people he trusts. He has the right links to ensure consistent supplies and never runs out of stock. Sometimes he also takes orders with full advance payment and delivers on his promise.

The grey market for personal care and cosmetic products appears to be well entrenched and established, operating for the most part in cash, and ensuring healthy returns for participants along the entire value chain. It serves all the categories of consumers, from the ordinary ones aspiring to use branded products beyond their reach to the very affluent.

“Most people are too desperate to care for the quality. For the quality-conscious middle class and status-conscious upper class, the informal enterprises offer suitable options,” commented a player who has been in the business for a long time.

“In a country where banks circulate counterfeit notes and the police collude with law breakers, you are on your own, with everyone else out there to cheat you. Yes, I suppose I can afford to be quality-conscious but I don’t want to spend a lifetime locating the most dependable place for shopping. For most families, convenience and safety are more important than an ideal deal,” said a customer filling his shopping cart at a supermarket.

“I visit the store because it is cheaper. I am not interested in what goes on in their back office,” a lady snapped when told that the store she was shopping at deals in smuggled products to get higher margins.

Little wonder, then, that the cries of manufacturers and traders in the formal sector fail to create ripples in the society.

Unilever Pakistan CEO Ehsan Malik was bitter. “We have directly and indirectly, through relevant forums, highlighted the issue of dumping of soap bars in Pakistan. The practice hurts the local industry and the economy. We have had some success in curtailing the grey import of soap. However, a lot still needs to be done to have a meaningful impact.”

Why do multinationals not boycott the stores hurting their interest by selling counterfeit products?

“Despite our disgust, the fact is that we are dependent on the retail sector and cannot afford to annoy a lobby that has the power to make or break a company, no matter how big it might be,” said a senior manager at another multinational.

The Senate’s Standing Committee on Finance, Revenue and Economic Affairs recently discussed the issue of dumping and grey trade and its impact on revenue collection and the local industry. The committee reportedly recommended scaling down duties to curb smuggling.

PPP Senator Salim Mandwiwala, who chairs the committee, promised to take up the issue of counterfeit beauty care products for proper investigation to support the formal sector and encourage investment in this huge and growing segment.

He quoted a World Bank report which said the country incurred a loss of $24bn over the past nine years owing to smuggling through the Afghan Transit Trade facility.

He blamed the administration’s failure for the sprawling units producing counterfeit items and the collusion of the Federal Board of Revenue and its field offices with unscrupulous traders for the dumping of fake goods and rampant smuggling.

FBR Chairman Tariq Bajwa reportedly blamed the country’s 2,500km porous border and the board’s insufficient staff strength to police the entry points. He said the government had been negotiating with the Afghan government to contain the misuse of the transit trade facility. He boasted that the FBR had seized smuggled goods worth Rs24bn last year against Rs5.3bn a year before.

Meanwhile, senior FBR officials also resent court intervention at the behest of what they perceive to be powerful lobbies and individuals when the tax authorities move against the law violators. They are particularly critical of how the Lahore High Court works in this regard.

FBR’s IR Policy Member Shahid Hussain Asad explained the challenges for tax collectors in a cash-based economy with a huge informal sector. “In the absence of data, we have no option but to locate tax evaders through their reported expenditures. The FBR’s plan for a parametric audit was shot down by the courts. We are doing random audits, which might not be ideal but are better than nothing.”

Pakistani manufacturers also report a hostile environment for local companies. “I am not ready to quit, but manufacturing and marketing your products when cheaper and fake versions are readily available in the market is not easy. The returns do not justify the labour that goes into this industry,” commented businesswoman Atiqa Odho.

Published in Dawn, Business & Finance weekly, October 26th , 2015

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