Daily Times

Decades of research and execution across the globe have produced overwhelming evidence that higher taxes on tobacco products can reduce the use of tobacco and can be an important source of government revenue as well. However, when policies and law enforcement are not aligned, there are those that may take advantage and find ways of evading taxes, and working angles for their own benefit with no regard for the government. Unfortunately, due to these gaps in checks in balance, the policy makers, sometimes inadvertently, end up achieving the opposite result.

Like any other country Pakistani government has also been increasing taxes on tobacco industry every year. A large rationale behind it has been to reduce the incidence of smoking in Pakistan. In past few weeks alone, papers are filled with calls for higher taxes especially. The fact that Pakistan’s two biggest “known” players have seen a decline in their volumes only fuels this argument. Unfortunately, the impression is false. Any analysis that bases its conclusions without accounting the growth rate of Pakistan’s infamous illicit cigarette trade is both incomplete and grossly misleading.

In truth, this scheme does not seem to be working very well so far.

Here are the facts; the government generates over 170 billion in tax revenues from the tobacco industry in Pakistan and out of this, 98pc is paid by the two multinational companies namely Philip Morris (Pakistan) Limited (PMPKL) and Pakistan Tobacco Company (PTC) while the remaining 2pc is paid by more than 30 local cigarette manufacturers, a fact the government is very well aware of as it was mentioned by Prime Minister, Imran Khan in his 2019 speech as well.

As we know, Pakistan ranks top on the illicit tobacco markets of Asia with an annual consumption of approximately 80-85 million sticks, and yet, after many surveys and research it is seen that roughly, 37-40pc of this number is sold by the tax-evading, local cigarette manufacturers! While the legal tax-paying cigarette manufacturers hold the remaining (60-63pc) share of the market. But the intriguing fact here is, that despite the government increasing taxes on the tobacco industry, the percentage of counterfeit, low priced and even smuggled tobacco market is not decreasing and in fact, their contribution towards the national exchequer remains steady at 2pc. One would ask, how is this even possible? Especially when the sales of legal multi-national tax-paying cigarette manufacturers are declining year on year.

At the same time the number of consumed cigarettes in the country remains flat and some reports even suggest that it is on the increase. This shows that despite the government increasing taxes on the tobacco industry the revenue is declining, the consumption of cigarettes remains the same or higher due to the myopic vision of policy makers.

The only sector that seems to be making profits out of these increased taxes and government policies is the illicit market that continue to sell cigarettes at cheaper rates. A locally manufactured pack of cigarettes can be bought at as low as Rs25 per 20 cigarette sticks pack which is way below than the government’s legally set rates of minimum Rs63 per pack. And the price of tax paying tobacco sector keeps going up every year.

The result is, your average smoker rather than quitting smoking due to higher prices down trades to a cheaper brand which eventually is increasing the profits of the illicit cigarette manufactures in Pakistan.

It is high time that the government takes meaningful action instead of propping itself on false positives. Strict measures against illicit trade in the country with a strong focus on illicit tobacco trade, instead of imposing more taxes on the legal tobacco manufactures and end up in reduced public health and fiscal benefit from tobacco taxes.