Daily Times

Despite having serious health implications and being a prime contributing factor to innumerable heart and lung diseases, the tobacco industry is still a viable business proposition, which is flanked with substantial earnings for the farmers and the governments. Many health care organisations, across the world, have been working tirelessly on an intentional and well-thought global campaign to make the masses conversant to the gruesome health issues that tobacco usage entails. It is also a reality that tobacco has been an adult choice for centuries, albeit its consumer base has been reduced over the years owing to health-conscious awareness campaigns. However, the tobacco industry is still hosting millions as direct or indirect employees and business partners across the globe. Regulating the tobacco industry, under the mandate of the WHO, by reducing the tar and nicotine contents of the end products, the imposition of heavy taxes to make it an expensive entity to consume and by ending illegal manufacturing and trade of tobacco have reasonably curtailed the tobacco usage in the West. However, the developing countries are still facing the menace of fake and substandard tobacco products, which has been further exacerbated by illegal trade; affecting both health of people and national exchequers.

Countries of South East Asia hold a large consumer base of tobacco consumers, who are oblivious to the health hazards that tobacco usage poses to human lives. Pakistan has also witnessed a spiked tobacco usage over the past two decades despite continuous efforts to bring in the awareness vis-à-vis a habit that has been turning into a social-evil; jeopardising the lives of non-smokers through passive smoking.

If we have to live with a functional tobacco industry till the time we would have a smoke-free environment, the wisest action would be to draw the maximum monetary benefits from this industry with the help of an expeditious tax regime.

It is pertinent to understand that if we have to live with a functional tobacco industry till the time we would have a smoke-free environment, the wisest action would be to draw the maximum monetary benefits from this industry with the help of an expeditious tax regime. Pakistani tobacco industry owes its dysfunctionality primarily to two main contributing factors. First and foremost factor has been illegal or non-documented manufacturing going on unabated in different parts of the country especially KPK. The illegal tobacco manufacturing and illicit trade have been depriving the national exchequer of hefty tax collection that could run into billions. A second major factor is the market penetration by the omnipresent de facto player i.e. smuggled products. These smuggled tobacco brands have been playing havoc with the consumer’s health by providing fake or low quality expired cigarettes. In addition to the aforementioned challenges, there is another aspect associated with the later conundrum and that is the level tar and nicotine in a cigarette.

In March 2017, the illicit tobacco sector was touching pinnacle by achieving a 41 per cent market share of the total tobacco industry in Pakistan. The government was faced with a steep revenue shortfall from the incumbent sector, a decline of 33 per cent from Rs 110.7 billion was recorded in 2016. The then government introduced two quintessential fiscal measures in the federal budget 2017-18, first being the reinstatement of the 3rd tier in excise structure and second being the introduction of advanced adjustable FED at the rate of Rs10/kg tobacco.

The 3rd tier empowers the legitimate sector to reassess their pricing strategy to bridge the price gap between their and illicit cigarette brands. The reduction in price delta helps the consumer to redefine their brand preference who had traded down to low quality but cheap options.

That specific move of introducing advanced adjustable FED to Rs 10/kg aimed at documenting the tobacco purchases by all manufacturers, who would pay the FED during Green Leaf Threshing (GLT), a process of converting tobacco leaf into processed tobacco, enabled FBR to document the processed tobacco by every manufacturer. These measures along with expeditious enforcement fetched the required dividends by reducing the illicit tobacco manufacturing market share to 34 per cent from 41 per cent over a period of one year, along with revenue additions to the national kitty.

Upon harvesting propitious incentives by introducing FED of Rs 10/kg during 2018, the government decided to further beef-up the FED to the level of Rs 300/kg in the mini-budget, to make it impossible for illicit manufactures to avoid the requisite documentation. As expected of the move, it raised the eyebrows of those who were having business stakes in the tobacco industry laced with the direct access to the elite corridors of the government. To resist that financial onslaught on illegal manufacturing, the government constituted a review committee comprising of members who have a soft corner for the illicit tobacco manufacturing. As expected, the proposal of enhancing the FED was turned down, by giving in to the protest staged by farmers at the behest of illicit trade stalwarts. This year again, an enormous increase of Rs 500/kg FED has been proposed by the tax collection body. However, the proposal, yet again, witnessed a déjà vu.

Smuggled tobacco products have inundated the local market with expensive and many times with expired cigarettes for the past many years. This smuggling has to be tackled by exercising the laws already present, however, never implemented. The WHO has been introducing numerous directions aimed at decreasing the harmful contents in the cigarettes i.e. tar, nicotine etc. The decrease somehow mitigates the gruesome impact on health by lowering down the injurious contents that also have a taste effect for consumers. The illicit tobacco manufacturing is not bound by any international obligations or direction. Hence, they flout all tobacco production laws by harbouring an unconstrained illegal production.

The tobacco industry is a reality that needs an immaculate tax regime to be handled with, to harvest propitious incentives. Perhaps by treating it as a one-way taboo by allowing the manufacturers to reap gigantic profits, is not only affecting the peoples` health but also depriving national exchequer of billions.

The writer is based in Islamabad and can be reached at chbilal1980@gmail.com