Daily Times

A direct quote from the market screener reveals, “Pakistan Tobacco Company Limited reported earnings results for the full year ended December 31, 2023. For the full year, the company reported sales was PKR 315,844.42 million compared to PKR 232,600.28 million a year ago.

Revenue was PKR 109,932.87 million compared to PKR 94,862.24 million a year ago. Net income was PKR 28,959.66 million compared to PKR 21,320.93 million a year ago. Basic earnings per share from continuing operations was PKR 113.35 compared to PKR 83.45 a year ago.” Refuting the claims made by the tobacco industry regarding their contributions to the Pakistani economy and their threats to withdraw investment requires a closer examination of the broader economic, social, and health impacts of the tobacco industry. This brief analysis will help clarify the situation and highlight why encouraging the tobacco industry to move its operations out of Pakistan could be beneficial in the long run.

Imagine an iceberg floating in the ocean. The visible tip above the water represents the direct taxes paid by the tobacco industry to the Pakistani government, which the tobacco industry claims to be significant. However, the much larger, submerged part of the iceberg represents the hidden and indirect costs imposed by the tobacco industry on society, which are often overlooked in such discussions. These hidden costs far outweigh the visible benefits. Both local as well as international tobacco industries and their affiliates argue that their presence in Pakistan brings substantial financial benefits through taxes and investments. They highlight that the tobacco sector is projected to pay Rs220 billion in taxes this fiscal year, a figure presented as a critical contribution to the national economy. They also mention that increased taxes on cigarettes have led to a 38 percent slump in sales and a rise in the illicit market, claiming that this reduces overall tax revenue. However, they completely ignore and shove under the rug the unregulated sales of e-cigarettes/vapes and nicotine pouches – making our youth a generation of nicotine addicts.

The visible tip above the water represents the direct taxes paid by the tobacco industry.

Additionally, the submerged part of the iceberg – representing the hidden costs – tells a very different story. The true cost of the tobacco industry in Pakistan includes: Firstly, the healthcare cost. Tobacco use is a major cause of various health issues, including 12 types of cancers including lung, throat, mouth, and numerous other kinds of cancers, heart disease, and respiratory illnesses. Treating these diseases imposes a heavy burden on Pakistan’s healthcare system. According to estimates by SDPI, PIDE, and SPDC, the cost of tobacco-related diseases in Pakistan runs into hundreds of billions of rupees annually – up to PKR 615 billion. This far exceeds the taxes paid by the tobacco companies that have thus far maxed out almost PKR 140 billion. Secondly, this also results in lost productivity: Smoking-related illnesses and deaths reduce the workforce and lower productivity. This loss is often not immediately visible but has a profound impact on the economy. Workers who fall ill or die prematurely due to smoking-related conditions contribute to lost economic output, further diminishing the supposed benefits of the tobacco industry. Hooking up the youth would mean bestowing Pakistan with a sick generation that is addicted to electronic and nicotine products. Thirdly, the environmental damage is unfathomable. The cultivation and production of tobacco contribute to deforestation, soil degradation, water pollution, and fresh air. These environmental impacts have long-term consequences that require significant resources to mitigate and rectify, and the tobacco industry in Pakistan is going scot-free.

More recently, there have been reports regarding the confiscation of large swaths of illicit cigarettes in many towns where tobacco factories operate. The tobacco industry also claims that high taxes drive the illicit market, but the reality is that the existence of an illicit market is often facilitated by the same companies’ practices. They benefit from it indirectly by maintaining a market presence through cheaper, untaxed products. Additionally, strong enforcement and regulatory measures, rather than lowering taxes, are key to combating illicit trade. The presence of the tobacco industry in Pakistan also has social costs, including increased rates of smoking among youth and vulnerable populations, leading to a cycle of addiction and health problems that can perpetuate poverty and hinder social progress.

As reported by the newspapers, some of the tobacco industry representatives threatened to withdraw investment and relocate operations if taxes are increased further should be seen in the context of the larger iceberg of hidden costs. While the visible tip – tax contributions and investments-appears significant, it is dwarfed by the submerged costs borne by society. The claimed Rs220 billion in taxes projected by the tobacco sector this year is overshadowed by the estimated annual economic loss of PKR 615 billion due to healthcare costs, lost productivity, and other indirect costs. Moreover, these taxes have increased due to the successful implementation of the Tobacco Track-and-Trace System in Pakistan. The net effect of the tobacco industry’s presence is thus a substantial economic drain rather than a benefit.

the assertion that increased taxes have caused a 38 percent slump in sales and growth in the illicit market is highly misleading. This slump should be viewed as a positive public health outcome rather than a negative economic impact. Reducing cigarette sales directly correlates with lower smoking rates and better public health outcomes. Additionally, within the “reduced cigarettes consumption” narrative, the tobacco industry also failed to mention profits made through unregulated/untaxed sales of nicotine pouches, electronic tobacco and nicotine devices, chemical refills, and many other hazardous tobacco industry (related) products. There is no doubt that addressing the illicit market requires better enforcement and regulatory measures, not lowering taxes. There is no known or scientific relationship between illicit products and taxes. Countries with effective enforcement and strong regulatory frameworks have successfully minimized the illicit trade of tobacco products without compromising public health objectives.

Encouraging the tobacco industry’s desire to relocate outside Pakistan can open up opportunities for economic diversification inside Pakistan and attract more health-friendly investments. With less than 0.5 percent employment and less than 1 percent contribution to the local economy, tobacco production and sales are hardly doing any favour to the country. The resources currently allocated to managing the negative impacts of the tobacco industry could be redirected to support sectors with more sustainable and positive contributions to the economy, such as healthcare, education, clean energy, environment and climate change.

Conclusively, Pakistan needs to adopt sustainable economic policies that prioritize public health and long-term economic stability over short-term gains from tobacco taxes. This includes enhancing enforcement measures to combat the illicit tobacco trade effectively. This involves improving border controls, increasing penalties for smuggling, and investing in technology to track and trace tobacco products. Implementing comprehensive public health campaigns to reduce smoking rates. This includes education programs, smoking cessation support, and strict advertising regulations. Investing in alternative industries and job creation initiatives to provide sustainable employment opportunities, reducing dependency on the tobacco industry. SIFC and other economic bodies must seriously consider the tobacco industry’s exit from Pakistan. In light of the Framework Convention on Tobacco Control (FCTC) and Pakistan has been a party to FCTC since 2005, this could be one of the most effective strategies for Pakistan.

The writer is a Research Associate at Sustainable Development Policy Institute (SDPI) and can be reached at wasif@sdpi.org. Views expressed by the writer are his own and do not necessarily reflect SDPI’s official stance.”