Increasing taxes is one of few options available with the government to control tobacco consumption, but last year an adjustment in duty structure of cigarettes was introduced which led to a sharp fall in its price resulting in promotion of smoking especially among the new generation.
Even more alarming is the fact that the growth in cigarettes’ production went up by 131 percent in January 2018 as compared to the same month in the preceding years, according to data of State Bank of Pakistan’s economic report.
Interestingly this astronomical increase in production is depriving the county of revenue from cigarettes as tax collection from the industry down by 11.8 percent but putting a large number of people on the health risk.
The production of cigarettes during the first seven months of the current year inflated by 76.94 percent by growing from 19,323 million in July-January (2016-17) to 34,191 million during the current year.
On a year-on-year basis, the production of cigarettes increased by 131.53 percent by growing from 2,239 million in January 2017 to 5,184 million in January 2018.
The tobacco industry presented a high figure of illicit trade in the country and used this figure to strengthen its case for the introduction of 3tier FED structure to get some relief.
The FBR took the step of 3tier FED structure after complaints that high taxes on tobacco industry giving way to smuggling of cigarettes into the country, thus causing a shortfall in government’s revenue in the shape of non-custom paid cigarettes.
On the other hand, certain stakeholders who blamed government departments for failing to curb smuggling and illicit cigarettes trade do not welcome this plea.
The stakeholders also contest the figure about illicit cigarette trade presented by MNCs and claim market volume of illicit fags is 9 percent and not 40 percent.
The stakeholders say the average price of Marlboro (in USD) in Pakistan is 1.25, in Sri Lanka every pack costs 6.41, in Saudi Arabia per pack costs 6.4, India charges 3.08 per packet, in Bangladesh pack’s value is 2.56, Iran charges 2.39, and China charges 3. 17.
But due to this difference of opinion between MNCs and other stakeholders, Pakistan is going to pay a heavy price if this state of affairs is allowed to continue as an abrupt increase in the number of smokers will cast societal and economic effects on our society which is already riddled with a large number of problems.
With the annual budget announcement around the corner, the government should do away with the tax concessions to the cigarette industry and ensure stringent tobacco control regime.
Even health departments also favouring the step to control the smoking to save the new generation and Ministry of National Health Services (MNHS) has asked the FBR to withdraw tax concessions.
The ministry had proposed before the 2017-2018 federal budget that the tax on the lower slab of all brands of cigarettes should be Rs44 per pack of 20 cigarettes. There was a higher slab as well in this two-tier tax regime for cigarettes.
This proposal made by the ministry was based on a research study on taxes on tobacco in Pakistan jointly conducted by FBR, World Bank, University of Toronto, the University of Illinois at Chicago and the Beaconhouse National University.
The study suggested a Rs44 tax on a pack of 20 cigarettes would ensure a decrease in the number of smokers by 13.2 percent and increase revenue by Rs39.5 billion leading to a reduction of 0.65 million premature deaths caused by smoking among current smokers, while also preventing 2.5 million youth from taking up smoking.
The study suggested more effective enforcement measures by governmental organisations like FBR to curb the illicit trade in tobacco producers.
“Incorporating input of concerned departments in policy-making process will help the government to tackle issues effectively, but that is happening with the health ministry which recommendations on tobacco control regime were ignored last year,” the study suggested.
But the health ministry has again intimated the finance division to increase the taxation on the tobacco industry.
“Pakistan is a signatory of World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC). It is also a committed under the convention to increase taxes on tobacco products to make them out of reach of consumers. It has been predicted that making cigarettes four times more costly in all countries globally by 2025 would reduce the world’s tobacco use prevalence from the current 21 percent to 15 percent in 2025 which is a target set by WHO as well,” the ministry said in a letter to finance division.
Another study launched by Pakistan National Heart Association and Human Development Foundation on 5th April 2018 has come up with a finding that the volume of illicit trade is not more than 9percent.
The study suggests that all stakeholders need a collaborative effort for a phase-wise reduction in smoking prevalence through a price increase.
The policymakers should decide keeping in mind overall national interest, not sectoral interests.
Along with policy coherence, there should also be policy rationalism. Illicit trade is an issue of enforcement while taxation is a policy related matter. Thus, the illicit trade should have been brought down through better enforcement, not through a reduction in prices of cigarettes. Instead of going for tax-related measures, the focus should be on vigorous enforcement of laws that can address illicit trade.
It can think of replacing the tier regime with a uniform FED regime which could not only increase the government revenue but also reduce the cigarette consumption.
The study said the economic cost of smoking in Pakistan amounts to Rs143208 million this includes direct costs related to healthcare expenditures and indirect costs related to lost productivity due to early mortality and morbidity.
To save millions of rupees being spent each year on the cure of diseases caused by tobacco smoking, all stakeholders should come up with strict tobacco control regime as the growth of tobacco sector has put a burden on the government.
The writer is a member of staff.