FBR step leads to enhanced tobacco consumption

FBR step leads to enhanced tobacco consumption

December 07, 2017

islamabad - Introduction of third slab of the federal excise duty increased consumption of tobacco in the country, thus benefiting the multi-national companies financially.

The third slab was introduced, on request of the companies, apparently in a bid to control the illicit trade of cigarettes. After the decision, the companies reduced prices of some of their brands, which led to further enhancing consumption , thus earning more revenues for them, an official disclosed on Wednesday.

The Senate Standing Committee of National Health Services was briefed on how the introduction of third tier by the Federal Board of Revenue (FBR) actually benefited the multinational companies. The Project Manager of Tobacco Control Cell Muhammad Javed said that Pakistan Tobacco Company (PTC) and Philip Morris had presented conflicting figures officially due to illicit trade of cigarettes.

However, he added, before introduction of the 3rd slab in May, the companies earned profits due to increased consumption .

The prices of cigarettes brands were increased in 2013-16 in two slabs as Pakistan was signatory of World Health Organisation (WHO) Framework Convention on Tobacco Control. However, in May, the FBR introduced the third slab after the multinational companies reported decline in their production and the government collected less revenue from the industry.

The FBR documents available with The Nation suggest that the rate of federal excise duty on the first tier of cigarettes is Rs3705 per 1,000 cigarettes while Rs1,649 per 1,000 cigarettes in the 2nd tier.

As per the FBR documents, gradual increase in the FED on cigarettes took prices to a point where the legitimate industry could not absorb further hike. As a result, volume of the legitimate industry was captured by low-quality and non-duty-paid cigarettes, which also resulted in substantial decline in the government revenue.

Before introduction of the third slab, revenue from tobacco industry stood at Rs88.40 billion in 2013-14, Rs102.88 billion in 2014-15, Rs114.19 billion in 2015-16 and Rs83.69 billion in 2016-17.

The FBR documents reveal that to tackle the menace of illicit, non-duty-paid cigarettes, a third tier was introduced under which an FED of Rs800 was payable per thousand cigarettes, i.e. Rs16 per pack of twenty cigarettes with sales tax at approximately Rs6.98 per pack.

 This third tier enabled the legitimate cigarette industry to price their lowest brands at approximately Rs47 to Rs48 per pack of twenty cigarettes.

“Controlling the illicit cigarette trade was an enforcement issue while preventing growing tobacco consumption was policy issue,” said the project manager of the Tobacco Control Cell.

The official said that the third slab led to a cutting the prices of four brands of cigarettes, which were early sold for above Rs70 a pack of twenty to Rs48. He added that this ultimately led to increased consumption of tobacco and also, increased profit of the companies.

A WHO study says that ten per cent increase in tobacco prices reduces consumption up to eight per cent in low- and middle-income countries.

Meanwhile, the FBR documents further reveal that after introduction of the third slab, FED payments by two leading cigarette manufacturers improved, the companies holding 96 per cent share in legitimate cigarette industry.

The net payment of sales tax and FED increased by approximately eleven per cent from Rs20,404 million to Rs22,623 million during the corresponding year, said the documents.

Secretary NHS Naveed Kamran Baloch informed the senate body that number of tobacco consumers in Pakistan was 25 million and more than 10 million were cigarette smokers. He said that above 100,000 people died every year because of tobacco consumption and everyday 1,200 children of teenage started smoking.

Chairman of the Senate committee, Senator Sajjad Turi said that the committee had directed for taking measures for prevention of tobacco consumption , however; confusion was created by the authorities in this regard. He recommended presenting the audit report of multinational companies.

Member of the committee, Senator Attique Sheikh, remarked that multinational companies used their influence and found a way for increasing their profits. “Loss is reported in annual reports while shares are increased in stock markets,” he said.

He alleged that the FBR dealt the issue tactfully to introduce third slab. The FBR official Zulfiqar Hussain said that consumption of tobacco had reduced in the country after pictorial warnings and increased prices.