Experts Urge Govt to Increase Tax on Tobacco Products by 70%

Experts at a webinar called upon the government to increase tax on tobacco products by 70 percent of their retail price, which they say is crucial to increase revenues in the face of the ailing economy,

The webinar on “Tobacco Taxation: Nostrum to the Ailing Economy” was organized by Sustainable Development Policy Institute (SDPI) here.

Dr. Shafqat Munir, Director Resilient Development Program SDPI said Pakistan ranks 10th highest tobacco-consuming country which needs immediate attention from the government. Upholding the idea of a 70 percent increase in tax on tobacco products, he urged the government to revisit fast-track progressive taxation regimes on tobacco to support the economy and reduce the incidence of tobacco-related diseases.

Asif Iqbal, Managing Director Social Policy and Development Centre (SPDC) said that if we plan to increase tax to 70 percent, “we would have to manage the price hike by the tobacco retailers”. He said that FBR’s track and trace system has effectively reduced under-reporting and illicit trade. He suggested adopting a medium-term tax policy to reduce speculation and data manipulation in the tobacco industry and ensure fair taxation for all. According to current estimates, up to a 70 percent increase in tax can generate over Rs. 65 billion in revenues, he said.

Dr. Vaqar Ahmed, Joint Executive Director, SDPI suggested that the brand registration fee structure should be increased and the registration must be renewed annually and the tax collection should be imposed in advance, which will not only guarantee higher revenue generation but will also discourage consumption. He further suggested that tobacco cultivation should be taxed to bring tobacco farmers into the tax net and discourage farming.

Wasif Ali Naqvi, Senior Research Associate, SDPI said that 170,000 annual deaths are caused by tobacco along with cardiovascular and respiratory diseases, and cancers. Against the global decline in tobacco consumption, Pakistan has a 24 percent consumption rate and 10.7 percent of youth aged between 13-15 indulge in smoking. Pakistan is a signatory to Framework Convention on Tobacco Control which suggests strengthening tobacco taxation and WHO suggests a 70 percent tax on the retail price, he said, adding that currently, the federal excise duty is around 44.3 percent after the Tax Law Ordinance.

He said that underreporting by the tobacco industry from 2015-18 cost the country $143 to $448 million each year. He said that only two tobacco companies pay 98 percent of the entire tax while the remaining cumulatively pay 2 percent of the tax. He elucidated that the volume of illicit trade increased from 23 percent to 40 percent from 2018 to 2020 and policy inconsistencies have been at the center of the revenue losses. He suggested constituting a working group of FBR with representation from federal and provincial governments to work on tax measures for the forthcoming budget and bringing novel nicotine and tobacco products, chewable tobacco products, and illicit trade into the tax policy regime.

Abdul Wahid Uqaily, Head for Track and Trace, FBR said that the track and trace system has been imposed in eight companies and is still in process for nine other registered companies. Stressing the need for educating the public regarding the track and trace system, he said each pack can be verified against the illegal sale and counterfeit. He further said that the track and trace system will also reduce the import burden in the tobacco, sugar, and cement sector.

Ammar Rashid, Research Lead, Heartfile, said that under-reporting of production and sales must be countered. Research reports show that annual sales under-reporting is between 27 percent to 47 percent and financial under-reporting falls between 20 percent to 40 percent, he maintained. He called for improving data availability on the consumption of tobacco products and the impact of an increase in tax and pricing on sales is crucial to come up with robust tax policies. He suggested making penalties stricter for tobacco companies in line with their profits.

Minhaj us Siraj, Chief Executive Officer, Syndicate Health, emphasized conducting training for health advocates regarding tax proposals. He said the imposition of an effective tax regime is complicated, as the registered market is held by a few companies and the remaining market is infiltrated by illicit trade.

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