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October 11, 2017

Up in smoke


October 11, 2017

A couple of decades back, cigarette companies used to be the major sponsors of sporting events and cultural activities in the country. Television commercials featuring daring men rewarding themselves with a puff of smoke after performing daunting tasks were quite common. This would inspire more and more people to take up smoking, especially the youth whose minds are easier to influence. The general perception was that a person had to be a chain smoker to be creative and anyone devoid of this privilege was a failure in this field.         

But as time passed, realisation about the hazardous effects of smoking on one’s health led to a major rethink. Within no time, a large number of countries had joined hands and gathered under the umbrella of the World Health Organisation (WHO) to devise a comprehensive plan and a framework to challenge this industry at every level.  

These countries meet periodically to review the progress on this front and suggest further actions, obviously more stringent than before, to help them block the growth of the tobacco industry and bring the number of smokers down fast. A special emphasis is on protecting non-smokers from falling for the overt and covert promotional tobacco product campaigns.   

In this context, there is a strong consensus among most nation-states on the imposition of heavy taxes on tobacco products to make them less affordable for the users. No doubt the demand of tobacco products is less elastic than other products but a rise in their price still translates into their significantly lesser consumption. 

We all know Pakistan cannot resist the temptation of signing and ratifying international treaties and conventions whenever they are introduced, despite its extremely poor record when it comes to compliance. Living up to this habit, it ratified        WHO Framework Convention on Tobacco Control (FCTC) in 2004 and agreed in principle to do its best to adopt anti-tobacco measures and achieve the defined targets.   

It is common knowledge that Pakistan’s compliance of the FCTC is weak but what the government has done this year is disastrous. Instead of bringing sales down by imposing heavy taxes, it has done the opposite – brought taxes down and helped boost the sales of tobacco products.     

This was least expected. In Finance Bill 2017, the Ministry of National Health Services (MNHS) of Pakistan proposed an increase in taxes on tobacco products but this did not materialise. There is a strong perception that the tobacco industry led had succeeded in getting the tax rates lowered – reportedly on grounds that high taxes had led to increase in smuggling of cigarettes into Pakistan. The government instead of tightening customs and border control took this unwanted decision and in a way supported the industry.        

Prior to this year, there have been two tiers of taxation. The upper tier tax was applied to tobacco products with a price tag above Rs72 and the lower tier tax was applied to tobacco products below Rs72. The tax applied to products in the upper tier was Rs63.10 whereas the tax applied to the lower tier was Rs28.40. The MNHS had recommended that the tax on the lower tier rise to Rs44 as tobacco products in this tier were consumed by almost 80 percent of the consumers.

The government, instead, introduced a third tier of taxation which was kept very secret until the draft legislation was prepared. Under this tier of taxation, tobacco products below the price of Rs50 will draw the new tax at the rate of Rs16.      

This provision has helped cigarette companies boost their sales. For example, the British American Tobacco lowered the prices for its top three highest selling brands to below Rs50. The applicable lax therefore reduced from Rs32.98 (as per the new second tax tier) to Rs16 (as per the new third tax tier). The equation is simple: the lower the price more is the demand.   

This does not mean that the government is going to slash its target of revenue to be collected from the tobacco industry. It is aiming for huge figures and even if it is settles for the previous year’s numbers, the sales will have to be doubled since the tax rate has been halved. This means a higher cancer footprint and more deaths due to tobacco addiction and expansion in the existing pool of smokers.

There has been terrible inaction by the government regarding its commitment to increase the Graphic Health Warning (GHW) coverage over 85 percent of the surface area of cigarette packets from the existing 40 percent, despite a lapse of three years.    

Against this backdrop, the best option for the government is to withdraw the third tier of taxation and go for 85 percent GHW coverage right away and save itself from further embarrassment. It can draw sanction from the FCTC whose Article 6 expects ratifying countries to implement tax and price policies on tobacco products as a way to reduce tobacco consumption.


The writer is a staffer at The News.

Email: [email protected]

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