A fool-proof system to track production, movement and consumption of tobacco products has still not been developed
The debate over the exact value of illicit trade of cigarettes in the country has remained inconclusive with different sides making different claims. The anti-tobacco campaigners, health sector experts, civil society organisations etc, claim that the figures cited by the tobacco industry are exaggerated and used as a means to get tax relief. The increase in tobacco tax is a reason cited by the industry for rise in illicit tobacco trade because, according to them, people opt for cheaper alternatives in such a case.
The argument in favour of a tax increase is that Pakistan has ratified the World Health Organisation’s Framework Convention on Tobacco Control (FCTC) which calls on member countries to gradually increase taxes on tobacco products to make them unaffordable.
The tobacco industry, especially the two leading multinationals — Pakistan Tobacco Company (PTC) and Philip Morris International (PMI) — claim that when taxes are raised the legitimately produced cigarettes get dearer and consumers turn towards cheaper ones. Most of the times, they allege, the cheaper cigarettes are the illicit ones which can be smuggled, counterfeit and non-duty-paid. They complain that there are cigarette packs available in the market being sold for less than the minimum price set by the government and do not carry the compulsory graphic pictorial warning. This makes them the first choice of the consumers.
While both groups make their claims, the anti-tobacco campaigners allege that the multinational companies produce legitimate cigarettes as well as non-custom-paid ones to cater to the poorer segments of the society. This is strongly contested by the multinational companies which say they pay around 98 percent of the taxes paid by the tobacco industry and never dump illicit cigarettes in the market.
Madeeh Pasha, the Pakistan Tobacco Company (PTC) corporate affairs manager, says there are cigarettes currently being sold at Rs 25-Rs 40 per 20 packs of cigarettes, which is lower than the government-mandated tax of Rs 44 and minimum price of Rs 62. He says these cigarettes are being produced by more than 40 illicit manufacturers and sold under brand names. The tax evasion is to the tune of Rs 77 billion (a figure challenged by anti-tobacco campaigners) while their share of the market is 37 percent.
Pasha claims that the legitimate industry, which is complying with all laws of the land, holds 63 percent of the market share and pays 98 percent of the total tobacco industry tax paid to the government.
Is there a way to know the exact situation or develop a fool-proof system where false or unsubstantiated claims can be detected? The answer is a track and trace system under which the products under observation (cigarettes in this case) can be monitored and followed from manufacturing to their final destination and the intermediary processes they pass through.
Unfortunately, in Pakistan, the Federal Board of Revenue (FBR) has not been able to award a track and trace system contract to a reliable party. Recently, it has expressed its resolve to go ahead with its plan to engage a consortium to track cigarette products and other commodities, including fertilisers. But keeping in view the past experience, there is scepticism that this time there will be a breakthrough.
In 2019, a contract awarded by the FBR to the National Radio and Telecommunication Corporation (NRTC) in a joint bid with Swiss firm Inexto — known for its ties to the tobacco industry — was cancelled. The NRTC had mislabelled its quoted price which led to reversal of the progress made so far. The Inexto’s connection with the tobacco industry was also a spoiler.
According to the FCTC, tracking and tracing tobacco products refers to the determination of past and current locations and recording the future location of all tobacco packaging, such as packs, cartons, master cases and pallets through the supply chain, until duties are paid and other obligations discharged.
Globally, it says, multiple track and trace solutions exist for a wide variety of products, but concerns have been raised about the feasibility and cost of tracking and tracing systems. The example of Brazil is pertinent. It has introduced a control and monitoring system and required a digital tax-stamp system capable of identifying each individual pack.
Malik Imran, the Tobacco Free Kids (TFK) country representative, says the big tobacco industry is a hurdle in the implementation of the track and trace system because it will expose its claims of huge tax evasion without any evidence. The system, he says, will put things in black and white and keep track of cigarettes passing through the factory gate. He says the claim about cigarette packs being smuggled into Pakistan in large numbers also does not hold ground because their crossing has not remained easy due to the laying of fences and tightening of border control. Imran says undoubtedly the tobacco industry will offer its help in setting up a tracking and tracing system but delegating tracking and tracing obligations to the tobacco industry conflicts with the protocol set for this purpose.
Dr Ziauddin Islam, a tobacco control specialist and WHO focal person, tells TNS that setting up a track and trace system is a main condition of the FCTC. Once it is in place, he says, the tobacco industry’s claim of extraordinary illicit trade will lose ground because everything will be evidence-based. Dr Islam says there are apprehensions that whenever the FBR tries to introduce a track and trace system, the tobacco industry uses its influence and creates some anomaly in the bidding process. This has happened in the past and the matter had to be taken to a court.
He suggests that there should be mobile devices given to the inspectors who can read the encoded messages instead of merely placing tickets on the packs. Secondly, he says, “the inventory details should be uploaded on the factory website as well as FBR dashboard the moment they are manufactured to discourage forgery. This will also put an end to claiming tax benefits on grounds of huge illicit trade figures.”
The author is a staff reporter and can be reached at [email protected]