bara market final

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Acknowledgement

We are thankful to our honorable teacher Professor Ikram-Ullah-Toor Sb. that he

has given us a wide topic ³BARA MARKETS and its impacts on our economy´.

Due to his guidance we have been able to work and to insert our inputs towards thecompletion of these project successfully .The efforts we made in the preparation of

this project will be helpful in our student life and also in our future professional

career. In order to learn more and more; we had put a lot of our efforts towards the

completion of this project.

BARA-MARKET« An Introduction:

Bara-Market is market where goods or products are purchased and sold for lesser

price levels as compared to other local and general markets. The reason for this

less price is that most portions of Bara market products consist of smuggled items,

which come from other countries through illegal ways and means, that¶s why we

can say that the Bara market is the other name of smuggled good markets. These

markets start as small markets in streets and then convert as established and big

markets in the city, Raja bazaar and Liaqat road Bara markets are the examples of

it.

How bara markets flourished:

Smuggled goods were confined to Landi Kotal, Quetta and 'bara' markets up to thelate 1960's. Later, these goods began to be sold in main shopping centres of Islamabad, Rawalpindi, Lahore, Karachi and other cities with the result thatsmuggled cloth and electronics goods are now abundantly available. In addition,with the construction of Karakoram highway towards the late 1970's the marketwith China has been opened and smuggled goods mainly fabrics, crockery andthermos began appearing at Gilgit and brought to Rawalpindi for onward sale in

other cities. Smuggling is not limited to fabrics, electronics or crockery; itencompasses almost all items such as tyres, tubes, automobile spare parts

cosmetics, cheese, blanket, ready-made garments, tea, colour film, paper and alliedmaterials and even cattle. Smuggled goods are now readily available on the streets.One can see imported goods now being sold from the trunks of cars stationed allover Karachi. Such large scale smuggling has had a very negative impact on localindustries. It is quite common that local industrialists raise hue and cry against



smuggled goods. The local industries are asking for tax concessions to competewith smuggled goods.

The bara market products (smuggled goods) are not included in the National

Income and GDP of a country. They are not tax paid goods also. So a countrysuffers a lot from such practices of bara market. If we look economy of Pakistan,we will come to know that the concept of bara markets have been practiced inmany big cities of country. Some important and big cities of Pakistan where baramarkets exist are as follows:

Rawalpindi (Raja bazaar, Pir-Wadhi)

Islamabad

Lahore

Peshawar

Quetta

MardanEtc

On the other side Bara markets have some advantages also, especially in a countrylike Pakistan, where the per capita income of people is low. So they (people) of low and middle income some times prefer to go to bara markets for purchasing

different goods. The main and major products which may be found in these baramarkets consist of:

Food items i.e.

Tea

Juices

Biscuits

Cold Drinks

Cigarettes

Sweets

Textile products

Crockery items

Cosmetics i.e.Perfumes

LipsticksOther hair and facial beauty products



Medicines

Drugs

Explosive material

Alcohol

Shoes

Mobiles

Explosive bombs

Vehicles i.e.

Their parts

Tyres

Smoking items i.e.

CigarettesHeroine

Injections etc

Effects of Bara-Markets on Economy

Bara-Market severely harms the economy of a country in multidimensional ways.

It undermines the local industry, discourages legal imports and reduces the volumeof revenues collected from duties and levies by the state. Unfortunately a parallelunderground economy has taken roots in Pakistan. A major proportion of therevenue to be collected by the Government is being lost, over and above theadverse impact that the smuggled items cause to our industry. Obviously this cannot be done without connivance of the corrupt officials including those in the lawenforcement agencies and every one is aware of it but no action is being taken.Markets and Shops across the country are flooded with smuggled goods of any and

all descriptions. Smuggled items through the borders of Iran, Afghanistan, China,and the Afghan Transit Trade form a major part of the informal economy volume

of which ranges between 50 to 60 per cent of the formal economy. In Bara-Market,smuggling has assumed an alarming proportion and turned out to be a paralleleconomy, which is depriving the country of its rightful levies including excise andcustoms duty worth hundreds of billions of Rupees.



(Graph shows that how Bara-Markets and smuggled products affect GDP

growth of an economy«Pakistan has the lowest GDP growth rate as

compared to other countries shown in the graph)

It has been said that:

³Smuggling has become a routine part of all economic activities in Pakistan´

Chinese products replaced Bara Markets:

Now a days Chinese products are replacing the Bara markets of our economy.Many Chinese products have been introduced and are available for sale with Baramarkets. The quality of these China made products is better as compared to Bara

Markets products. So the introduction of Chinese products is a positive indicator for the growth and development of our economy. This will also discourage the

persons who bring the smuggled products in Bara markets.The reason of flourishing China products and markets is that cost of production,labor and other costs are quite LOW in China as compared to Pakistan. That¶s whythe prices of China made goods are low as compared to Pakistan. And this is also



the reason why Chinese products are replacing Bara markets of our economycontinuously.

Loss to Industries:

Due to above mentioned facts, thousands of industrial units have been renderedsick, due to the availability of smuggled goods in open markets. Afghan TransitTrade is the main source of such illegal products into Pakistan and its annualvolume has been estimated about five to six billion dollars, about 70% of the totalsmuggling causing a revenue loss of about 2.5 to 3 billion dollars annually (whichhas been almost tripled during 2008-2010) to the national exchequer. Afghan

imports under Afghan Transit Trade are actually arranged for back smuggling intoPakistan with the help of Afghan traders.

(N ews of ³Daily Jang´ to stop smuggling between Pakistan & India)



It is not possible to determine the precise amount of revenue loss and size of black money or shifting of money abroad. Revenue loss on account of smuggling of Afghan transit trade alone, as estimated by the World Bank, amounted to US$ 35

billion during nine years from 2001 to 2009. Bara-Market has now become the

place of a routine part of all economic activities places in Pakistan which hardlyraises any eye brows nor stirs the slightest fear of the law. Pakistan is facing thechallenge of measuring and countering enormous revenue leakages and black

money ² its size estimated to be three time the regular economy. People are bringing in Pakistan petroleum products from Iran which is cheaper than inPakistan. The volume of this trade is estimated to about rupees two billions. Evenimprovised explosive devices are being smuggled via Afghanistan are contributingto a climate of fear.Smuggled materials help militants prepare suicide jackets, explosive-laden vehiclesand other sorts of explosive bombs. Involvement of Pakistan customs officials in

this unethical process cannot be ruled out. With their connivance the containersregistered in the name of NATO containing alcohol, expensive spices and other contraband items are also offloaded in Pakistan.Another gateway for Bara-Market i.e. Afghan Transit Trade through WahgaBorder has been opened by the present regime which would result in a big chunk of Indian goods destined for Afghanistan would ultimately land in our domestic

market, which would damage the national economy of Pakistan which is alreadydwindling because of the impact of the war on terror and Afghan transit trade.



To curtail the existing high volume of Bara-Market through Afghan Transit TradePakistan needs to revise the transit agreement. Both the countries should also reachon a uniform taxation mechanism on imports. Anti-Bara-Market and anti-corruption laws need to be strengthened and their implementation in letter and

spirit through a dedicated staff should be ensured. Pakistani policy-makers mustrealize that a sound development strategy seeks to reduce the size of the informaleconomy and bring into the open resources that lie in the form of black money.

FBR should remove distortions from the economy, bring all the sectors andtaxpayers in the tax net, curtail Bara-Market, curb parallel economy, and take allthe stakeholders into confidence and make it business friendly.

( Smuggled perfumes, used to sale in Bara-Markets)

At the same time, it should rationalize the taxation system to attract the influentialindustrialists to pay taxes. Measures should also be taken to discourage under-

invoicing and proper documentation of economy should take place to bring theinformal economy under the tax net. According to an estimate, presently taxevaders in Pakistan annually deprive the country of revenue of over US $20 billionin aggregate but the government, instead of putting them behind bars, encourages

their unlawful activities.

A good thing in fresh legislation of Switzerland is that now burden of proving that



the money came from legal sources would lie with the allegedly corrupt official,rather than the Swiss state. If the official could not prove a legitimate origin of hisor her Swiss assets, they would be confiscated by the Swiss state. The Governmentshould take immediate steps to retrieve this black money which will surely

discourage the smuggling and Bara-Market tendency also.

Afghan transit trade«its implications on Bara

Markets

Afghanistan is a landlocked country with a lot of mountains and it produces littlefood or other goods for domestic use. The post-Soviet military operation period has

been characterized by civil war shattering the economy further. Karachi is thenearest port which has been used as transit facility for goods imported or exportedfrom Afghanistan. As a result, Afghanistan has been dependent upon Pakistan for the transshipment of goods since long. Prior to the demise of USSR, to the north of Afghanistan lay the Soviet Union whose goods were brought to Afghanistan for smuggling to Pakistan which shares around 1000 miles of porous border.

( Adopting measures to curb smuggling under Pak-Afghan trade pact)

Since Afghanistan had little industrial activities, the pursuit of its people mostlyhas been smuggling and sale of smuggled goods across the border. As a result,'bara' markets were established in adjoining areas of Pakistan such as Landi Kotaland Chaman as far back as 1960s or even 1950s, The 'bara' markets later sprang in

Peshawar, Karachi, Quetta, Rawalpindi and other cities which has been a source of anxiety for the government because of loss of customs revenues and for industrialists on account of keen competition from smuggled goods. According toDr. Mahbubul Haq, a former. Finance Minister, the size of black economyincluding smuggling, drug trafficking, tax evasion and corruption is as high as Rs.700 billion, or about half of the official GNP (A National Agenda, Critical Choicesfor Pakistan's Future, p.5). The Finance Minister in his current year's budget



speech pointed out that since the beginning of 1980s, smuggling grew "not only insize and proportion but also in terms of number of items and their scale. It is nowone of the most organized features of illiciat trade backed by financiers operatingfrom all parts of the country. Some careful calculations estimate the quantum of

such smuggling and leakages at not less than Rs.50 billion. The effect of this phenomenon has been disastrous..........´ Accordingly, the import duties ondifferent goods were slashed.

Problems with transit trade:

The problem with transit trade is that goods imported by Afghanistan find theoutlet to Pakistan causing incalculable damage to government revenues and local

industries. The current Afghan Transit Trade Agreement (ATTA) initiated in 1965expires in September next. The present budget envisaged total revenue Collection

of Rs. 259 billion which consisted of Rs. 60.8 billion of direct taxes, Rs. 91.0 billion of customs, Rs. 58.4 billion of sales tax and Rs. 48.8 billion of centralexcise. Collection of total taxes over the first six months (July-December 1994)amounted to Rs. 95 billion (or 36.9 per cent) with direct taxes at Rs. 24 billion (or 39.4 per cent), customs at Rs 33 billion (or 37.3 percent), sales tax at Rs. 19 billion(or 31.9 percent) and central excise at Rs. 19 billion (or 39 percent). Alarmed byhuge shortfall, the government undertook measures which inter alia includedreshuffling of Central Board of Revenue and review of ATTA.

In the first week of February in a major crackdown, the

government suspended clearance of all goods imported under ATTA. The action,resulting in huge piling of goods in KPT sheds, has been taken following reports

by Customs Intelligence that fake letters of credit are being used as instruments for imports. The government has also directed to seize all goods loaded onto railwaywagons and trucks en route to Peshawar along the National Highway. The goodsseized included, among other things, about 25,000 TV sets and 19,000 air conditioners beside millions of metres of cloth and a large number of electronics.The axe fell on ATTA following reports that some of the importers using AfghanTransit Trade facility are Pakistani nationals living in the tribal areas that transfer money out of the country through non-banking channels and import goods dutyfree under the garb of Afghan Transit Trade.



(W rist W atches in Bara-Markets)

The crackdown most severe since the transit trade began to be closely monitored to plug the loophole reflected the CBR's concern over the fact that the value of suchtrade has quadrupled to about Rs. 11 billion last year as compared to about Rs. 3

billion in the previous year. The government has advised all importers of Afghantransit goods to produce certificates from foreign beneficiary banks confirming theletters of credit opened for imports. From February 8, no goods were to be clearedunder the Afghan Transit Trade unless the importers produce letters of creditconfirmation certificates from foreign beneficiary banks.

By mid-February, Advisor to Prime Minister onFinance and Economic Affairs, Mr. V.A. Jafarey pointed out that there will not betotal ban on transit trade but fifteen terms were prohibited which constituted about80 percent of imports under Afghan transit trade. The banned items are air conditioners, art silk fabrics, auto parts (all sorts), ball bearings, refrigerators, soap

and shampoo, television sets and parts thereof, timers and capacitors, black tea,cigarettes, metalised films, poly vinyl chloride, plastic moulding compound, tyresand tubes and yarn (all sorts). The import of cigarette, tyre and tube was banned asfar back as June 1992 following complaint of rampant smuggling of these itemsinto Pakistan.



After Pakistan's ban on tea trade through Afghan Transit Trade, the smugglers havenow shifted their operation to the Iran border and according to one estimate around1,000 tonnes of Kenya black tea has been shipped to Afghanistan through Bander Abbas (Iran) under Iran - Afghanistan Transit Facility. It is feared that the tea stock

will eventually be smuggled into Pakistani markets as black tea has no demand inAfghanistan. According to Pakistan Tea Association, the national exchequer suffered a loss of Rs. 1 billion in 1994 when about 30,000 tonnes of tea valued at

$60 million was clandestinely imported into Pakistan. Legal import of tea has beendeclining because of smuggling. In 1993, it was around 121 million kgs comparedto 100 million kgs. In 1994 while according to annual consumption, it should have

been 130 million kgs. With the block of Afghan Transit Trade through NWFPareas, smugglers have found a new route using Pak-Iran-Afghan borders for smuggling of tea via Mombasa - Dubai - Islamqila. It may be mentioned here thatsmuggled tea through various channels has nearly eaten up 60 per cent market of

local importers. According to a local importer, unless prompt remedial action wastaken by the government in this regard, the decision to ban black tea imports would

be negated and become irrelevant.

The menace of smuggling:

Smuggling harms a national economy, any national economy, in many ways. Itundermines the local industry, discourages legal imports and reduces the volume of revenues collected from duties and levies at the import stage and taxes collected at

the retail stage.

Smuggled goods are not only easily available but are also appreciated by the bulk

of buyers who prefer anything which is foreign. The situation has become so badthat smuggled products such as many premium varieties of cigarettes which areeither locally produced or being legally imported have to face a stiff competitionfrom their smuggled counterparts.

While the menace of smuggling has left hardly any sector untouched in Pakistanthere are certain items which are more smuggling-prone than the others.

Electronics items such as television, VCR, VCP, hi-fis; household items such as blenders, mixers, juicers, radio cassette players, air conditioners, refrigerators,irons; garments, cloth and a wide range of toileteries, perfumes, and cosmetics are

some of the high smuggling-prone items. One can easily buy a range of knownsmuggled cigarettes, perfumes, electrical and electronic items, and even shoe

polish.



In short, smuggling has become a routine part of all economic activities in Pakistanwhich hardly raises any eye brows nor stirs the slightest fear of the law. Instead, asmuggled good is proudly flaunted. The immediate-past chairman of SITE, the

biggest industrial area of Pakistan, has lamented to PAGE that "Our markets have

become the warehouses of foreign goods as our national psyche prefers all goodsof foreign."

Following is the detail of some products which are being sold in bara markets after smuggling:

Tea:

According to Hanif Janoo, the chairman of Pakistan Tea Association, about 20 per

cent or 25 million kilogram of the total annual tea demand of 135 million kilogram

is met by the smuggled tea.

Importers blame the high duty² 25 per cent² which along with sales and other taxes adds up to 58 per cent, as the primary cause of huge tea smuggling. While theimport duty on tea has been gradually reduced during last few years many feel it isstill on the high side to provide smugglers with the required incentive to keep

pushing tea into the country.



Automobiles:

Even the automobiles are not left untouched by the smuggling regime in Pakistan.According to an official estimate over 25,000 smuggled vehicles, a majority of

them high-priced station wagons and four-wheel drives are present in the countrymost of which are not registered. Last week the Central Board of Revenue, theapex tax collecting agency, extended the deadline for the legalisation of non-duty

paid smuggled vehicles by January 31 next year. The owners are asked to legalisesuch vehicles by paying the assessed duty and taxes without imposition of any fine.According to CBR some 3,500 smuggled cars/jeeps were legalised in May/Junelast year while another 4,000 heavy transport vehicles were legalised during theamnesty campaign till a few months ago.

( A view of smuggled automobile)

Tyres:

Tyres, particularly the truck and bus variety, have also being smuggled into our country. According to Muhammad Aslam, a Karachi based tyre importer, some770,000 truck and bus tyres are being smuggled into Pakistan annually whichcause a revenue loss to the government of a huge Rs 2.1 billion.

To highlight how badly the menace of smuggling is underminging the nationaleconomy, PAGE talked to Muhammad Aslam on the impact of huge revenue loss



of Rs 2.1 billion from the smuggling of truck and bus tyres into the country.Putting the truck and bus population in Pakistan at 161,000, Aslam said that itcomprises 97,500 trucks, 58,500 buses and 5,100 oil trucks.

Tyre Smuggling, Chaman, Pak-Afghan border, PakistanSmuggling of tires from Afghanistan into Pakistan via Friendship gate at Chamanis one of the most lucrative businesses in that region, apart from smuggling of narcotics and weapons. In fact, tire smuggling has lately into an art form, whereover-loading is the order of the day and a lump sum amount allows driver to takeas many as he can. This driver is a good example of that.

(T yre smuggling, at Chaman, Pak-Afghan border)

Buses are fitted with seven tyres, trucks with 7,10 and 22 tyres depending upon themake and model. As the estimated life of the tyre of these commercial vehicles is

between six to nine months under normal operating conditions and based on theusage ratio of seven tyre per vehicle, the annual demand of truck and bus tyres inPakistan comes to around 1,058,000 annually.

Local production and imports are only able to meet 19 per cent or 200,000 unitsand 8.2 per cent or 88,000 units respectively of the total annual demand of 1,058,000 truck and bus tyres. On the other hand, over 72 per cent of the localannual demand for 770,000 tyres are met by the smuggled tyres.



Of these 770,000 bus and truck tyres 39 per cent or 300,000 are of Indian andJapanese origin each while the rest of the 22 per cent or 170,000 tyres are from theother origins. Aslam said that massive smuggling of truck and bus tyre, anobviously big item, is not possible without the connivance of various government

agencies which have a cut of the illegal but profitable trade. Putting the expenses atRs 750 per tyre² Rs 250 from border to the Quetta city in the Balochistan province or to Peshawar or Miran Shah in the North West Frontier province, the

two major routes, and Rs 500 from wholesale to the retail markets in various cities,he said that each retail shop pays anywhere from Rs 3,000 to Rs 6,000 per monthto various agencies as protection money. The unholy alliance between hundreds of truck and bus tyre retail outlets and the various agencies adds up to a huge Rs 600million at the expense of the exchequers. Aslam put the net annual revenue loss atRs 2.1 billion from this singular smuggling activity per year.

Suggestions/ Recommendations Bara-Markets:

The bad impact of Bara-Markets and smuggling can bi stopped by devising andadopting strong and economic beneficial policies and laws so that the illegal tradeof tobacco, cosmetics, crockery, textile products, vehicles and other electronics andfood items can be avoided:

Here are some of the important steps and recommendations, which if taken wiselyat right time, can stop the hazards of smuggling and BARA MARKETS from the

economy:

Raise public awareness of the negative aspects of smuggling Increasing penalties: cigarette smugglers continue because the benefits

outweigh the risks. There should be strict check and balance of Bara Markets from time to time

to ensure that no illegal and unlawful means of trade or import from other countries is in progress.

Place µtax-paid¶ markings on tobacco products: these clearly distinguish

between legal and illegal goods, making contraband products easier to detectand trace, and the law easier to enforce.

Eliminate duty-free sales, which often serve as a major source of smuggledcigarettes.



Special steps for Tobacco:

Each delivery of goods from out side the country would be regulated and allwholesalers would have to obtain country import permits.

All tobacco products would be accounted for prior to delivery from thewholesaler and all trucks carrying such product had to report to a centralcontrol facility prior to delivery.

A Nation surcharge would be levied on the tobacco product with theresulting funds used for communal projects.

All retailers would be licensed by the government of Pakistan and subject to periodic inspection. No tobacco product could be sold without government

stamp.

Cigarette smuggling can be reduced, but action is needed at the national,

regional and global level. Effective international action should be facilitated by the inclusion of a specific protocol on smuggling in the proposed WHOFramework Convention on Tobacco Control.

Conclusion:

The concept of Bara Markets has been flourishing and expanding in

Pakistan day by day. There are different cities where such markets exist

like Rawalpindi, Lahore, Karachi, Peshawar, Quetta, Mardan and manymore. The advantage of Bara-Markets is that low income people can do

shopping from these markets at cheaper rates as compared to other

markets; BUT its hazards are greater and more dangerous for the

economy. Most portion of Bara market products include of smuggled

goods. Income from such illegal means is NOT included in the GDP of

country also. It also puts bad effects and signals on other

manufacturers and producers of country. These hazards can be avoided

and stopped by having check and balance on all imports, spreading

awareness campaigns and devising economic friendly policies which are

in the best interest in the progress and development of our economy

and country.



References:

We have consulted various journals and websites to collect data for the completionof our project. Some important ones are as follows:

http://indiancountrynews.net/index.php?option=com_content&task=view&i

d=2193&Itemid=56

http://findarticles.com/p/articles/mi_hb092/is_n8_v29/ai_n28711477/

http://www.pakistaneconomist.com/issue1999/issue51/cover.htm

http://findarticles.com/p/articles/mi_hb092/is_4_31/ai_n28820246/

http://www.globalink.org/en/smuggling.shtml

http://www.dailytimes.com.pk/default.asp?page=2007\09\20\story_20-9-2007_pg11_11

http://criticalppp.com/archives/28602

International Islamic University, Islamabad

bara market final

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