KARACHI: The price of tea has more than doubled over the last few years in the country.

It is about 50 per cent more expensive here than in India, and traders attribute this trend to devaluation of rupee and rising international prices.The disparity in the price of the product in the two neighbouring countries is attributed to the difference in the incidence of sales tax and customs duty.

At an ordinary tea shops in Karachi, a cup of tea costs Rs16 while Rs20 are charged for special tea. At high end restaurants and hotels, a cup of tea costs up to Rs150.

A tea seller in Saddar attributed high tea prices to high cost of gas and power bills, rising rent of shops, milk, sugar and other expenses.

Smuggled tea is sold in the city in open sacks which can be easily adulterated. Gram husk, dyed saw dust and wood shavings are used for adulteration, an insider in tea trade told Dawn.

Market sources said most of the tea selling outlets procure smuggled tea at cheaper rates as compared to packed brands.

A leading tea blender said that current rate of good quality Kenyan tea is $3.05 per kg (C&F Karachi) as compared to $2.85 per kg last year.

He said customs duty and sales tax are levied on value which further inflate the retail price. As a result, tea in Pakistan now is 50 per cent more expensive than India where there is no customs duty and sales tax is levied at a concessional rate of four per cent, recognising tea as an essential item.

He said in Pakistan, however, 16 per cent sales tax, is levied which is the same as on non-essential items.

“If disparity in cost of tea in Pakistan and India is to be reduced and consumers cushioned from inflation, government levies needed to be reduced from the current level of over Rs100 per kg,” he told Dawn over telephone.

The blender made a case to control smuggling that deprives the government of the revenue and upsets the market dynamics of companies involved in the tea sector.

“Over half of the 200,000 tons of tea consumed annually in Pakistan is smuggled. The government earns nothing from it. If 110,000 tons are brought into the official net, the government can cut levies to less than half of the present rate, and also collect the same amount as currently,” he said.

He said the FBR sets targets for revenue collection in rupees. Despite steadily declining quantity of official imports over the last five years, absolute revenue in rupees from government levies on tea (import duty and sales tax) has increased because of rapid increase in international cost of raw tea, rupee devaluation and consequent increase in consumer price on which sales tax is charged.

“Afghanistan, a country of about 20 million where people prefer green tea, should not be importing over 100,000 tons of black tea. Pakistan which has an average consumption of 1.1kg per person should be importing 200,000 tons. Yet it imports less than 90,000 tons officially, and the rest comes through smuggling from Afghanistan”, a source told Dawn.

“Against Rs116,000 a ton that the formal sector pays on nearly 90,000 tons it imports, evaders manage to smuggle over 100,000 tons of tea by incurring a facilitating fee of quarter the amount per ton,” he added.

“The best way to revise levies on tea is to raise import duty and exempt it from sales tax, aiming to reduce total levies to a point that leaves little or no incentive to evade,” a packer suggested.

It is estimated that smugglers incur Rs30,000 per ton by way of facilitation costs. Government levies of around Rs40,000 per ton should substantially remove the incentive to evade.

He said there is disagreement on quantity of tea consumed, from which the quantity smuggled is derived.

FBR underestimates both, hence shows reluctance to act. Tea companies claim higher consumption and smuggled tonnages, basing it on their knowledge of consumer trends and bid volumes for Pakistan and Afghanistan in tea auctions in Kenya.

The estimates of quantity smuggled ranges from 40,000 tons as per FBR and 110,000 tons according to the tea companies.