Pakistan is a signatory to the World Health Organization’s Framework Convention on Tobacco Control, which calls on member states to take measures to discourage smoking. One of the measures it suggests is an increase in taxes on tobacco products so that they become expensive for buyers. (That demand for a product decreases as its price rises is a basic principle of economics.)
Unfortunately, in Pakistan, the government has been giving tax relief to the cigarette industry. This amounts to lowering the retail price of cigarettes so that more and more people can become smokers and those already smoking can consume more cigarettes than before. There is credible evidence that the relief has been granted mainly due to successful lobbying by big tobacco companies who have been barred from even advertising their products in the mass media, displaying posters at points of sale or announcing rewards for salesmen.
It is claimed that high taxes drive illicit trade as people opt for cheaper options in the form of smuggled cigarettes.
Big companies, including Pakistan Tobacco Company, a subsidiary of British American Tobacco, have managed to keep cigarette prices in the Pakistani market the lowest in the region and among the lowest in the world. How did they manage to do this in spite of the efforts of the WHO, the Health Ministry and a slew of NGOs from across the country and abroad?
There is lobbying in every country to reduce tax. But the scary effectiveness with which it has succeeded in holding back a sensible tax policy for two decades in Pakistan is amazing.
In the pre-budget industry presentations, the leading cigarette companies have managed to convince the Federal Board of Revenue, that unlike any other place in the world in Pakistan cigarette consumption actually increases when you increase the price. Sounds strange; doesn’t it?
There always are transit trade, counterfeiting and other problems that the authorities world wide counter through enforcement. Tax policy decisions are independent of it. One does not reduce taxes on an industry because there are some tax evaders out there
This was done by inventing a myth of illicit trade. They point to the local cottage industry and claim that if cigarette prices increase through higher taxes people switch to the lower quality cigarettes manufactured by the local industry. They cite sponsored research suggesting that illicit trade is rising. The government then quickly backs off fearing a drop in tax revenue.
In 2016, the BAT artificially held back production (a fact ascertained in an inquiry by the Auditor General) in the months leading up to the budget to put pressure on the FBR to slash taxes on their products by as much as 30 per cent. The move led to a loss of about Rs 60 billion to the government and record profits for the BAT. The National Accountability Bureau is only beginning to look into the matter. Meanwhile, the number of people dying from smoking rose from 108,000 in 2016 to 160,000 in 2018.
The fact is Pakistan is no different from other regional countries where informal trade makes up around 10 per cent of the market but cigarette prices are double or triple those of Pakistan. There always is an element of transit trade, counterfeiting and other problems that the authorities world wide counter through enforcement. Tax policy decisions are always independent of it. One does not reduce taxes on an industry because there are some tax evaders out there. Governments world over increase taxes and improve collection through enforcement. The FBR must not surrender to cigarette smugglers and tax-evading manufacturers.
The cigarette companies’ campaign in Pakistan has been so effective that even our prime minister is reported to have supported their stance. His point was that we should not increase taxes on tobacco products because the multinational duopoly – PTC and Philip Morris – that pays most of the industry’s taxes may suffer. Can tax proceeds from the consumption of a hazardous product be more important than the lives lost to the menace?
An extra Rs 10 tax on a 20-cigarette packet will bring an additional Rs 50 billion in revenue, which can be used to subsidize medicines and healthcare if nothing else. The lobbying is on for this year’s budget.
The writer is a freelancer