The addition of a third tier of Federal Excise Duty (FED) on cigarettes, leading to up to 50 per cent reduction in tax on tobacco products is likely to increase their consumption in the country.
Pakistanis smoke over 65 billion cigarettes in a year. A cigarette consists of various toxic chemicals such as nicotine, carbon monoxide and tar along with heavy metals and several carcinogens. Annually, over 100,000 deaths in the country can be attributed to diseases caused by smoking of cigarettes. By reducing taxes, the government has paved the way for even higher incidence of smoking-related deaths and diseases. There can be no two views about the disastrous effect of tax reduction on public health indicators.
The government’s argument for tax reduction has been that it is losing millions of rupees in revenue due to widespread availability of smuggled cigarettes at prices lower than those of locally manufactured cigarettes of the same brands. Here is what’s happening: instead of using price and tax measures to decrease cigarette consumption, a tried and tested policy measure in other countries — the government is using these economic policy tools singularly from the standpoint of revenue generation.
Revenue generation is important for Pakistani economy to be self reliant, but will it be prudent to go about this objective at the cost of public health? Surely, smuggling can be dealt with at a significantly lesser cost to public health through law enforcement agencies meant for the purpose.
Pakistan is a signatory to the World Health Organisation (WHO)’s Framework Convention on Tobacco Control (FCTC) which calls for “price and tax measures to reduce the demand for tobacco”. The minimum FED suggested under the convention is 75 per cent. A research report released by The Network for Consumer Protection, a non-profit organisation, shows that the cumulative FED on tobacco products till fiscal year 2016-17 was around 57 percent.
The dangers of cigarette smoking are well established, and there is a global consensus that while individuals cannot be stopped from smoking altogether — say by declaring the activity as illegal — governments should take measures to discourage demand. It was against the backdrop of this consensus that economic measures like higher prices and taxes and non-economic measures like ban on advertisements, prohibition on sale to children, and restriction on smoking at public places had been introduced the world over.
In Pakistan, some of these measures have been in place but as the most recent tax reduction indicates there is a long way to go in effectively using these instruments as well as others like education and awareness campaigns to discourage demand for tobacco products. Meanwhile, revenue generation objectives can surely be met through other sectors of the economy.
For starters, the government may begin by considering a tax on agricultural income from big farms.*