Govt’s Tax Scheme Backfires as Tobacco Consumption Increases in Pakistan

A survey conducted by the Centre for Social Education and Development (CSED), titled ‘Impact of Price Increase/Decrease over Tobacco Consumption’, showed that the recent introduction of Tier III taxation (which has resulted in lower price for some of the premium brands) has actually led to an increase in tobacco consumption, which kills approximately 108,800 people annually in Pakistan.

The survey included general interviews which were conducted randomly with smokers in different areas of Islamabad and Rawalpindi. An overwhelming majority of participants (59 percent) confirmed that the recent introduction of Tier III taxation had actually resulted in the increase of tobacco consumption.

Cigarette prices have increased elsewhere in the world, to discourage smoking and save lives, however, Pakistan was the only country where cigarette prices of premium brands fell by 33.33 percent in the 2017-18 budget.

In fact, this was a breach of World Health Organisation (WHO) Framework Convention on Tobacco Control (FCTC), where Pakistan is a signatory. The FCTC specifically identified that increasing the price of tobacco products was a way to discourage its consumption and keep the youth away from smoking.

The survey revealed that 63 percent of the total respondents believed that an increase in prices would decrease their tobacco consumption on a daily basis. Around 25 percent of respondents could not decide, while 12 percent respondents did not care about the increase in the prices of tobacco items.

Similarly, a total of 59 percent respondents said that a decrease cigarette prices, after the introduction of Tier III, had actually increased their daily consumption, while 27 percent respondents answered in the negative, and 14 percent gave a neutral answer.

The survey findings suggested a strong co-relation between prices of products and tobacco consumption. Hence, in order to control tobacco consumption, the government needs to increase taxes on tobacco products.

The government needed to make it a cornerstone for any future tobacco/cigarettes control policy which was in line with WHO regulations. This could only be achieved if the Federal Board of Revenue (FBR) came out of its tobacco tax “addiction”.

The report findings also revealed that the National Health Services Minister Saira Afzal Tarar suggested increasing Federal Excise Duty (FED) on the lower slab, Tier II, of all brands of cigarettes to Rs. 44 per pack of 20 cigarettes in the 2017-18 budget to reduce tobacco consumption. However, Tier III was introduced by the FBR in the Finance Bill 2017 to increase revenues.

Within weeks, the decision proved disastrous, as multinationals started manipulating it by lowering prices of their best selling products placed in Tier II prior to the introduction of the Finance Bill 2017 to fit them in tier III. Now instead of paying a tax at the rate of Rs. 33.4 per pack of 20, cigarette manufacturers were now paying only Rs 16. per pack of 20 cigarettes.

The government needs to look at the health aspect of the tobacco sales since official measures in this regard could prevent thousands of deaths per year.

According to WHO, tobacco consumption kills over seven million people every year, out of which 108,800 people die in Pakistan.

The government needs to understand that the revenue of Rs. 75 billion it generated from the tobacco industry every year was far less than over Rs. 100 billion that are spent on treating diseases caused by smoking.

According to the report, funded by Bloomberg Philanthropies and Bill and Melina Gates Foundation,

Pakistan has one of the largest populations of tobacco users in the world, with over 22 million adults aged 18 or older smoking tobacco products. Almost one-third (32.4 percent) of men and 5.7 percent of women smoked tobacco, while 15.9 percent of adults were regular smokers.

The survey findings showed that increase in tobacco prices every year increased revenues from cigarette industry all over the world. This price reduction would cost approximately Rs. 33 billion in comparison to last year, with approximately Rs. 30 billion additional loss for not increasing prices suggested by the health ministry. Due to this, the total accumulative loss could reach approximately Rs. 60 billion.