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Losses in revenue from tobacco industry: Govt urged to place transparent Track and Trace System

January 11, 2020

ISLAMABAD: With claim of causing losses of Rs153 billion to national exchequer by tobacco industry through various tactics, the anti-tobacco campaigners have asked government to place an independent and transparent Track & Trace System to stop under-reporting of real production.

This whopping figure of losses of Rs153 billion have been estimated on the basis of study done by Social Policy and Development Center (SPDC) and its findings were shared in a conference organised here on Friday.

“The tobacco sector contributes less than 1 percent in Large Scale Manufacturing (LSM) and its revenue estimated losses for three years stood at Rs140 billion through different tactics including declared less production, front loading of stocks and other measures to evade taxes,” the SPDC’s Senior Economist Waseem Saleem stated while presenting findings of the study here in a session titled “loss of revenue because of deceptive tactics of tobacco industry” organised by Society for the Protection of the Rights of the Child (SPARC), Human Development Foundation (HDF) and Pakistan National Heart Association (PANHA) on Friday.

Addressing the participants, Malik Imran Ahmad from Campaign for Tobacco Free Kids, Pakistan Office, said big tobacco industry caused a whopping loss of Rs153 billion to the national exchequer from 2016 to 2019 by being awarded low tax rate and adjusting the prices of their most sold brands. He quoted the figure of Rs200 billion that is incurring on annual basis because of health problems emanating from smoking.

He further added that after the introduction of the third tier, around 160 billion cigarettes were produced between May 2017 and March 2019. Big tobacco companies share 75 percent of the total market, which means they were able to sell 120 billion cigarettes in the same period. Loss of revenue due to the introduction of the third tier (low tobacco taxes) is Rs77.85 billion from 2016 to 2019. Loss of Revenue due to Price Adjustments is Rs75 billion from 2018 to 2019.

“Local manufactures of cigarettes have their representation in the Senate and National Assembly and big companies even approach the prime minister to plead their case regarding taxation on tobacco products”, Malik said. He said that the track and trace system should be placed in transparent manner as he alleged that the FBR hired consultant to devise Terms of Reference (ToRs) that suits certain firm. Without placement of track and trace system through transparent manner, he said that the whole concept of gauging real production would be compromised. He cited example of Kenya for placing track and trace system in transparent manner. He said there should be unified taxation regime for tobacco industry and Pakistan should increase its taxes to align with regional economies. He said that the lower tier cigarette packet stood at $0.52 cents in Pakistan while its price in India was ranging $1.5 per packet. So there is need of increasing additional taxation of Rs90 per packet in Pakistan, he added.

When asked about increasing trends of illicit cigarettes, he said that it was an administrative issue and the government must crackdown against them. He lambasted that the nexus established and there was no action taken by the FBR against illicit cigarettes.

Waseem Saleem, Senior Economist, Social Policy and Development Centre (SPDC) said that the large fiscal imbalances in Pakistan require greater tax revenues. Tobacco taxation can positively contribute to government revenues. Simultaneously, these taxes will also help promote public health objectives.

He added that the level of under-reporting of cigarette production in Pakistan has significant negative implications for government tax revenue. Revenue loss due to undeclared production is estimated to be Rs31 billion while by including GST revenue, it becomes Rs37 billion (considering the average FED rate of Rs1.93 per cigarette in 2016-17, calculated by dividing total revenue by the volume of sales).

He also claimed that the volume of illicit trade was very low and it could be 9 percent but the tobacco industry says that it ranges around 34 to 40 percent. He further added that the annual economic cost of smoking in Pakistan is as high as Rs143.208 billion.

Health advocates urged the government to increase the rate of tax on cigarette manufacturers in the upcoming budget for fiscal year 2020-2021.