Money Matters

Smoky affairs

April 16, 2018
By Shahzada Irfan Ahmed

The fight against the use of tobacco products is picking up pace around the world and there is hardly any disagreement over the fact that it is extremely hazardous to human health and a major cause of death.

Industry

The fight against the use of tobacco products is picking up pace around the world and there is hardly any disagreement over the fact that it is extremely hazardous to human health and a major cause of death.

Pakistan is among the countries that have made strong commitments to bring tobacco consumption down through different measures. For example, advertising of tobacco products is strongly regulated and there are laws which prohibit their promotion through placement of advertisements in newspapers, magazines, TV channels, radio transmissions etc.

The retail outlets have also come under the scanner as cigarette companies want them to work as their marketers as well. Located across the lengths and breadths of the country these outlets are present in the form of kiosks, grocery shops, convenience stores, supermarkets, shops at petrol pumps and so on. The government has banned hoisting of banners, posters, billboards etc at these points of sale to reduce the trend of smoking among countrymen.

This is important because the cigarette companies focus on these outlets and even design their planograms. There are reports that outlets are designed or approved by cigarette companies who provide racks and organised grocery dispensers to the retailers. These companies also cover the cost of setting up racks and decorating interior and also pay the electricity bills for the units consumed by signboards etc. But this is not the case now as outdoor advertising has been strictly banned. Other measures taken in this regard also include placing pictorial warning on cigarette packs.

However, it is believed that tobacco taxes are the most effective but the least-used tobacco control tool. The point here is that a sufficiently large tax increase will raise tobacco product prices, make them less affordable and drive down tobacco consumption among masses.

Pakistan has over the years increased taxes on cigarettes which resulted in a steep fall in their production and consumption, especially in 2017. But what happened last year (2017-2018) was that the Federal Board of Revenue (FBR) revised the tax regime and reduced taxes on cigarettes that pushed their production upwards. The reason given was that the high taxes on cigarettes had resulted in their smuggling into Pakistan, abrupt rise in sale of non-custom paid cigarettes, increase in illicit cigarettes trade, evasion of taxes and revenue downfall.

But there are others who contest these excuses and say that the failure of the FBR machinery to curb smuggling and illicit cigarettes trade must not be made the basis for facilitating cigarette manufacturers and promotion of smoking through tax concessions. They also assert that the figure about illicit cigarette trade quoted by the industry and its lobbyists is exaggerated and claim it is hardly 10 percent and not 40 percent of the total market volume.

A recent study titled "Study to Assess the Volume of Illicit Cigarette Brands," conducted by the Pakistan National Hearts Association (PANAH) in collaboration with the Human Development Foundation (HDF) has pointed out that the figure is hardly around nine percent of the total volume of cigarettes consumed in the country.

So the question here is that with the annual budget announcement round the corner, should the government do away with the tax concessions to the cigarette industry and effectively discourage smoking or let them stay there. If we go by the stance of the Ministry of National Health Services (MNHS), the desired action on part of the FBR is to withdraw tax concessions.

The ministry had proposed prior to the 2017-2018 federal budget that the tax on the lower slab of all brands of cigarettes should be Rs44 per pack of 20 cigarettes. There was a higher slab as well in this two-tier tax regime for cigarettes.

This proposal made by the ministry was based on a research study on tobacco taxation in Pakistan jointly conducted by FBR, World Bank, University of Toronto, University of Illinois at Chicago and the Beaconhouse National University.

According to the study, a uniform specific excise tax that accounts for Rs44 per pack of 20 cigarettes could reduce the number of smokers by 13.2 percent, increase revenue by Rs39.5 billion leading to reduction of 0.65 million premature deaths caused by smoking among current smokers, while also preventing 2.5 million youth from taking up smoking. The FBR was also asked to take enforcement measures to curb illicit trade in tobacco producers. But on the contrary, the FBR introduced a third tier where cigarettes could retail below Rs58 per pack and the excise duty would be Rs16 per pack. The companies made best use of this offer and brought down the price slightly down to fall in this bracket.

The ministry like last year has intimated the finance division to increase the taxation on tobacco industry as Pakistan is signatory of World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC). It is also a commitment under the convention to increase taxes on tobacco products to make them out of reach of consumers. It has been predicted that making cigarettes four times more costly in all countries globally by 2025 would reduce the world’s tobacco use prevalence from the current 21 percent to 15 percent in 2025 which is a target set by WHO as well.

Having said this, one can insist that the official and irrefutable statistics shall form the basis of future policies rather than the speculations or estimated data without any empirical evidence. The fact that the production of cigarettes almost doubled during the quarter following the introduction of this third-tier points out where we are heading. These figures were cited by none other than the State Bank of Pakistan (SBP). Even more alarming is the fact that the growth in cigarettes' production went up by 131 percent in January 2018 as compared to the same month in the preceding years.

So, why should the FBR not be held directly accountable for its failure to curb smuggling, check illicit trade and achieve revenue targets instead of giving them the power to take steps against the spirit of the international convention the government has signed and ratified. The answer must come now and the best way is to incorporate it into the budget document under preparation.

The writer is a staff member