Tobacco is harmful, whatever the form it has, and there is no protected use of tobacco experience. Cigarette smoking is the most common form of tobacco use elsewhere. Other tobacco products include waterpipe tobacco, various smokeless tobacco products, cigars, Biri, pipe tobacco, Sheesha, Naswar, Gutka, Main puri, etc.
More than 80% of the tobacco use burden remains in low- and middle-income countries (includes Pakistan), resulting in tobacco-related health diseases and mortality. Tobacco use further aggravates poverty by switching domestic spending from essential commodities such as food and shelter to tobacco. Recent studies in Pakistan identify that the health cost of tobacco-related diseases is 615 billion Rupees annually, and 75% of such expenses are out-of-pocket expenses as a societal expenditure.
The Islamic Republic of Pakistan is the thirty-third largest country in terms of area and fifth-most populous with over 210 million. The country has a massive reservoir of young people, with 64% of the population below 29 and 30% between 15 and 29 years. According to the World Bank's statistics, Pakistan is among Asia's five fastest emerging economies, registering a growth rate of over 5.7% in 2017, which is projected to continue.
Like other countries, Pakistan also faces significant challenges, and effective tobacco control is one of those challenges. Pakistan is one of the largest tobacco-consuming countries in the world.
Taxation is known to be the most cost-effective tobacco control measure available to governments throughout the world. However, tobacco use generates a substantial economic obligation on the population at large. High direct health costs associated with tobacco-related disease and higher indirect costs related to premature loss of life, disability due to tobacco-related illness, and productivity losses create significant negative externalities of tobacco use. Implementation of Article 6 of the WHO FCTC is an indispensable element of tobacco-control policies and, thereby, efforts to improve public health. Tobacco taxes should be implemented as part of a comprehensive tobacco-control strategy in line with other articles of the WHO FCTC.
The tobacco industry has always portrayed high figures of illicit trade (as it is a global phenomenon) to strengthen their business against tobacco control legislation, enforcement of laws, etc. In May 2017, Pakistan had reduced tobacco taxation by 50% & introduced the 3rd tier, arguing for an increased scale of illicit trade; the regime has been controversial since the start. (Read 'Illicit cigarettes: a smokescreen?' published April 13, 2018). However, the tobacco industry welcomed its commencement on grounds that it would help to fight 'illicit' trade and eventually turned around their fortunes. (Read 'Big tobacco wins, again,' published May 2, 2018). With the introduction of 3rd tier of tobacco taxation in Pakistan, the prices of cigarettes dropped, and consumption increased. As a result, cigarette production hitting through the roof in FY 18, accompanying a tax loss of over Rs30 billion amid cigarettes becoming cheaper by over 20 percent in real terms.
These trends prompted independent studies to assess the volume of illicit trade in Pakistan. A research study (Economics of Tobacco Taxation and consumption) - commissioned by the Pakistan Institute of Development Economics (PIDE) at the 34th Annual General Meeting reported that the estimated loss of tax revenue due to three-tier FED structure (along with a reduction in the tax rate) was Rs42.5 billion in 2017-2018. PIDE study analyses also show that a 10% increase in price will lead to an 11% reduction in cigarette consumption, translating into annual savings of Rs Sixteen billion by the individual make a convincing case to reconsider the multi-tier FED regime.
PIDE further elaborates that backtracking to a two-tier tax system with higher FED as suggested will raise the average cigarette pack price; reduce smoking prevalence among current and future smokers by 2.6 million individuals, and avert almost one million premature deaths as a result. Those health outcomes are more than double what can be achieved from the existing three-tiered system.
Another study conducted by Pakistan National Heart Association and Human Development Foundation and report launched on April 5, 2018 - has come up with a finding that the volume of illicit trade is recorded at 9%. That study used the retail data only for the selection of its study locale. But it conducted a very robust sample collection on its own.
In Pakistan, there is no exact and authentic estimate of the illicit tobacco trade was available. Most of the data was provided by the tobacco industry and is often exaggerated to benefit favorable taxation and legislation. However, independent studies have constantly challenged such high figures.
In 2018 FFO, a think tank, studied a research study to quantify the share of illicit tobacco use in ICT. A combined smoker survey and cigarette pack observation were used in Islamabad 30 clusters (1,200 HHs). The key findings of the study revealed that 15.8% of the cigarette brands consumed in the federal capital Islamabad.
Many research studies conducted in Pakistan reveal eye-opening facts about how the tobacco industry manipulated fake statistics to pressure every Government and resist tobacco taxation reforms and, most of the time, get successful in hampering the decision to raise taxes.
"Irony is that the tobacco industry makes a minimal contribution to the Pakistani economy." Despite being one of the largest tobacco-growing countries, unmanufactured tobacco production accounts for less than half percent (0.42) of the total value of agricultural produce, 0.25% of the total area under cultivation, and only 0.03% agricultural employment (8,200 persons). Similarly, the cigarette industry's share is 1.1% in large-scale manufacturing and less than a half percent (only 0.3%) in industrial employment.
In continuing their deceptive strategy, Tobacco Industry keeps on arguing and lobbying that the high taxation on tobacco products makes them expensive, so smokers are tempted to buy smuggled, counterfeit, and non-custom paid cigarettes. Thus, it increases the rate of illicit trade of cigarettes.
Tobacco Industry also claims the share of the illegal trade of cigarettes in Pakistan reached 37.6% in 2020. It is significant to mention that TI efforts and lobbying usually increase the near-annual budget due to the fear of imposition of higher taxes in compliance with the World Health Organization's (WHO's).
This is funny to see that in March 2021, Tobacco Industry was quoting the figure of 44 Billion annual loss due to the illicit trade of cigarettes in Pakistan. Now within three months, they are alleging this figure swelled to 75% with new statistics of 77 billion loss.
To sell such fake figures, they heavily and aggressively promote this exaggerated statistic through mass media campaigns to dissuade the Government from increasing tobacco taxation in the upcoming budget.
Researchers noticed remarkably such an approach to pressurize Government. In a research paper, "Big Tobacco's Predictable Pre-Budget Tantrums in Pakistan," in October 2020 in Nicotine and Tobacco Research finds that "Phillips Morris International (PMI) is currently funding a media campaign in Pakistan: #AwazUthaoMulkBachao #44Billion4Pakistan, asking the public to sign a pledge to save 44 Billion Pakistani Rupees (PKR) supposedly lost to illicit tobacco trade every year. Clips from the campaign have been shown on television channels, a dedicated YouTube channel, and shared on Facebook and Twitter. This campaign continues a pattern of increased tobacco industry (TI) media activity in the lead-up to annual budget debates in the National Assembly of Pakistan,5-8, with an ulterior motive to undermine tax increases on tobacco products in the annual budget by influencing the public narrative and pressurizing policymakers.
Lately, in late 2020, FFO, a think tank, has conducted another market-based research study in the Provincial capital Lahore. Peshawar finds that only 15.66% of the cigarettes brands consumed in Lahore and Peshawar failed to comply with the six-factor criteria; related to pictorial health warnings, textual health warning, low price/tax evasion, age warning, manufacturer details, and printing of retail price and thus classified as illicit. The study also reveals that 5.93% of smokers were using smuggled cigarette brands, whereas 9.72% of smokers used low price/ tax evaded cigarette brands. These (9.72%) cigarette packs meet all the criteria of legitimate brands but sell at low cost (PKR 25-50), making them illicit, i.e., Duty Not Paid. (the Government has mandated a minimum price of Rs. 63 a pack).
The survey results established that smoking is inversely related to academic qualification and price and validates FFO's earlier report on the same issue. The respondents appear to be less educated (66.38% matric or below), and 55.4% of the smokers are willing to quit or decrease smoking if the price is doubled.
In conclusion, the survey's significant finding reveals that the prevalence of illicit cigarette use is 15.66% in this provincial capital, significantly below the much-propagated figure of 37.6% by the tobacco industry.
The increases in tobacco taxes decrease tobacco use. Indeed, raising taxes on tobacco and increasing its price is one of the most effective ways to reduce tobacco use. Prices affect virtually all cigarette use measures, including per-capita consumption, smoking rates, and the number of cigarettes smoked daily. Reduced cigarette prices due to lower tax rates are causing significant losses to the national exchequer. Increased consumption also puts the burden on the national treasury through increased spending on health. In addition, there is a strong relationship between cigarettes' illicit trade, governance, illegitimate business, money laundering & terrorism financing.
The Governments should fully implement the WHO Framework Convention on Tobacco Control and its Protocol to Eliminate Illicit Trade in Tobacco Products. Pakistan applies a specific excise tax system to cigarettes with two price tiers: low and premium. The excise tax rate on economic and premium brands is 42.6 and 59.8 percent of the printed retail price, respectively, resulting in a significant excise tax gap between the two tiers. Due to the large share of low-taxed cigarettes in the total consumption, the average excise tax share is 45.4 percent of the retail price, much lower than the WHO recommendation that excise tax is at least 70% of the retail price. So it would be in the best interest of the public health and economy of Pakistan. Therefore, the Government should seriously consider following the recommendation of World Bank and WHO and enhancing tobacco taxes, which are currently stagnant at the level of 2017 taxes.