The government of Pakistan is announcing its budget for the next fiscal year within days and no doubt these are one of the toughest times for this exercise. The spread of the new coronovirus has posed tough challenges for the ruling dispensation related especially to the health and safety of its citizens and the economy of the country.
This is also the time when different business and industrial sectors share recommendations with the government and seek measures/favours that benefit them and ask for removal of difficulties they face. In this scenario, the tobacco industry is in a tricky situation, and despite being a legal business cannot formally engage with the government in policy decisions regarding its business.
This is mainly because of the international commitments made by the government of Pakistan under the World Health Organisation’s (WHOs) Framework Convention of Tobacco Control (FCTC) which it signed and ratified in 2004. This convention is the first international treaty that provides a framework for tobacco regulations.
Article 5.3 of the FCTC clearly states that “In setting and implementing their public health policies with respect to tobacco control, Parties shall act to protect these policies from commercial and other vested interests of the tobacco industry in accordance with national law.”
The parties here refer to the member countries. It was in line with this clause that Prime Minister Imran Khan was criticised widely some time back for receiving donation from the representatives of the tobacco industry.
So, what the tobacco industry mainly-dominated by two multinational companies – Pakistan Tobacco Company (PTC) and Philip Morris Pakistan (PMP) – does is that it always asks for tax relief from the government.
The argument it gives is that when the prices of their products increase due to heavy taxation, the volume of illicit cigarettes in the market increases for being much cheaper. The illicit trade they say includes sale of non-duty paid, smuggled and counterfeit cigarettes.
The representatives of the tobacco industry have claimed that a substantial increase in Federal Excise Duty (FED) rates have been witnessed in recent years. They add the duty levied on the lowest-priced cigarettes has increased the most leading to an alarming increase in illicit trade of the commodity.
Madeeh Pasha, who looks after corporate affairs at PTC, says they demand from the government that there should be no excise-led price increases, as the share of illicit trade has reached 37 percent share of the total cigarette industry.
This he says harms the legal business as well as deprives the government of tax revenues to the tune of around Rs40 billion per year. The industry fears that if there is further increase in tax, illicit trade and tax evasion will further increase.
Though the cigarette industry has won tax favours in the past, this is also against the spirit of FCTC which calls for gradual increase in taxes on cigarettes. The guidelines for implementation of Article 6 of the WHO FCTC recommend: “When establishing or increasing their national levels of taxation Parties should take into account – among other things –changes in household income, to make tobacco products less affordable over time in order to reduce consumption and prevalence.”
Dr Ziauddin Islam, Technical Head, Tobacco Control Cell (TCC), the Ministry of National Health Services Regulation and Coordination claims that illicit trade is around 17 percent and must be stopped, but it is no way close to the exaggerated figures quoted by the tobacco industry.
He says all over the world FED is imposed on goods whose use has to be discouraged and cigarettes are a perfect example of this. Without naming, he says a truck carrying stock of a leading cigarette company was intercepted and found carrying both invoiced and un-invoiced cigarettes.
He says they vehemently ask for high taxation on cigarettes every year because it makes them less affordable and this is what the health ministry shall be doing.
In June 2019, the World Bank released a country brief titled “Pakistan: Overview of Tobacco Use, Tobacco Control Legislation, and Taxation” which says the tobacco industry used exaggerated estimates of illicit trade to argue against tobacco tax increases.
It also mentions that the tobacco industry carefully planned the decline in the government revenue in 2016-2017 with the aim to reduce the excise rate. The report adds the industry achieved its objective through forestalling, price over-shifting and overestimating illicit trade.
Anti-tobacco campaigners, health sector professionals etc argue that if illicit trade is a reality it must be tackled through prescribed mechanisms and not at the cost of increase in cigarette consumption. They claim low prices attract youth the most, because low-cost cigarettes are affordable for them.
But this does not mean there have not been attempts to curb illicit trade. A track and trace system was introduced here to curb illicit cigarettes’ trade, but the contract was scrapped by the Supreme Court of Pakistan last month on grounds that it was awarded to a bidder unfairly.
It was also suspected that a leading cigarette company had great influence in the contracting company. No doubt, a genuinely granted contract can obtain the desired results and this is something worth campaigning for.