In an interview with The Nation, Dr. Ikram Ghani a retired senior officer of the Federal Board of Revenue who also served as the Chairman Pakistan Tobacco Board, discussed the dynamics of tobacco sector in Pakistan with special reference to the outcry by the cigarette manufacturers against the unprecedented increase in the rates of Federal Excise Duty imposed on cigarettes through the Tax Laws (Second Amendment) Ordinance, 2022 with effect from 22nd August, 2022. He explained that there are serious misconceptions and misunderstandings regarding taxation of cigarettes and these are a direct result of the studies sponsored and at the behest of big tobacco manufacturers.
In response to a question Ghani stated that the Trans National Cigarette manufacturers use self-funded data and the threat of the Illicit Non-duty paid cigarettes in efforts to oppose tobacco control policies, arguing that tobacco control measures will increase the trade of illicit cigarettes. He stated that the volume of illicit cigarettes in Pakistan is no more than a specter created by the manufacturers to restrain the policy makers from enhancing taxes on cigarettes to achieve the twin objectives of increasing much needed government revenues to reduce consumption with its attendant health benefits. He contended that the figures of illicit trade of cigarettes as reported in the studies funded by the big manufacturers have been found to be highly exaggerated by independent researchers as well as studies by World Bank.
He explained that smoking is one of the leading causes of deaths that can be prevented. He stated that around 20% of the adult Pakistanis use some form of tobacco. Almost one third of Pakistani men (32.4%) and 5.7% of women smoke tobacco.High smoking rates contribute to a significant number of early deaths, high healthcare costs and productivity losses. Over 100,000 Pakistanis die each year from tobacco related diseases. The majority of these deaths result from lung and other cancers, strokes, Heart and respiratory diseases.
Ghani contended that according to various researches published by Pakistan Institute of Development Economics among various policy interventions to reduce cigarette consumption, the most effective way to reduce cigarette consumption is to increase the prices through tax hikes and ensure that the tax increases are reflected in prices and passed on to the consumers. According to him there is enough global evidence to establish that higher cigarette taxes discouragethe start of smoking, reduce cigarette consumption, and can even nudge smokers to quit altogether. Hence, the price-increase strategy through taxation effectively reduces the overall prevalence of smoking.Existing empirical research confirms that higher prices discourage youth from starting cigarette smoking and encourage current smokers to quit. According to PIDE studies the analysis of the relationship between price increases and intentions to quit smoking shows that as prices increase, the number of quitters increases.
Ghani contended that when cigarettes become unaffordable, majority of the smokers prefer to quit instead of switching to other brands or products.The findings that cigarette affordability facilitates smoking and that smokers do not switch to other brands or products and the fact that cigarette prices in Pakistan are still affordable,provides a strong case for effective tobacco taxation policies. Excise duty on cigarettes in Pakistan as a proportion of prices is much lower than the 70 percent minimum suggested by the WHO. The taxes should be increased to this threshold to have a meaningful impact on reducing cigarette consumption. He also argued that the excise duty is not only less than the recommended levels but is also designed in a manner to encourage consumption by the youth, the lower income and rural consumers. He stated that Pakistan follows a two-tier duty structure, under which the low-priced large volume cigarettes constituting only about 10 to 12% of the total cigarettes sold targeting the low income and younger sections of the society with much less affordability are subjected to much lower amount of excise duty. Whereas the high-priced cigarettes are subjected to higher amount of excise duty in absolute as well as percentage terms. To elucidate this contention, he explained that on the basis of current rates of excise duty and the retail prices the duty paid on the higher priced 1st tier is 66% whereas on the low priced 2nd tier cigarettes the rate of duty as a percentage of the retail price is only 46%. He argued that this duty structure is totally irrational.
The lower income sections of he society are much more sensitive to price increases whereas the higher income customers of 1st tier of cigarettes due to affordability are not much perturbed by price enhancement. Therefore, the cigarette manufacturers have very successfully protected the largest share of their market with much lower incidence of excise duty. Logic would demand that in order to curtail consumption preferential treatment to low priced cigarettes in the duty structure must be discontinued to maximize health gains from price increases through tobacco taxation. The two-tiered structure needs to be discontinued and all cigarettes should be subjected to an ad valorem rate of duty of 70% as recommended by the World Bank. He also emphasized that the suggested change is imperative as the younger population starting smoking due to affordability concerns always start from the 2nd tier cigarettes and the prices of these products have to be increased beyond their reach. He concluded by saying that the Government should not fall prey to the blackmailing tactics by the cigarette manufacturers and instead of reversing the duty increase should further enhance it as suggested above. He also emphasized that cigarette taxation is not just a revenue issue but has far reaching repercussions on the health and productivity of the citizens as well as the expenditure on smoking related ailments and must be handled as such.