Tobacco is harmful in any form and there is no such thing as protected tobacco use. Cigarette smoking is the most common form of tobacco use elsewhere. Other tobacco products are water pipe tobacco, various smokeless tobacco products, cigars, biri, pipe tobacco, sheesha, naswar, gutka, main puri, etc.
More than 80% of tobacco use remains in low and middle income countries (including Pakistan), leading to tobacco-related health diseases and mortality. Tobacco use further exacerbates poverty by shifting domestic spending from essential goods such as food and shelter to tobacco. Recent studies in Pakistan found that the health care costs of tobacco-related diseases are 615 billion rupees annually, and 75% of that expenditure is social expenditure.
The Islamic Republic of Pakistan is the third largest country in terms of area and the fifth largest with over 210 million inhabitants. The country has a huge reservoir of young people, with 64% of the population under 29 and 30% between 15 and 29 years old. According to World Bank statistics, Pakistan is one of the five fastest emerging economies in Asia and recorded a growth rate of over 5.7% in 2017, which is expected to continue.
Pakistan, like other countries, faces major challenges and effective tobacco control is one of those challenges. Pakistan is one of the largest tobacco consuming countries in the world.
Taxation is considered to be the cheapest tobacco control measure available to governments around the world. However, tobacco use creates a significant economic liability for the population as a whole. High direct health costs associated with tobacco-related illnesses and higher indirect costs associated with premature death, disability from tobacco-related illnesses, and lost productivity result in significant negative externalities in tobacco use. Implementation of Article 6 of the WHO FCTC is an indispensable element of tobacco control policy and thus of efforts to improve public health. Tobacco taxes should be introduced as part of a comprehensive tobacco control strategy in line with other articles of the WHO FCTC.
The tobacco industry has always shown high numbers of illicit trafficking (as it is a global phenomenon) to bolster its business against tobacco control laws, law enforcement, etc. In May 2017, Pakistan had cut the tobacco tax by 50% and the 3rd stage, which argues for a greater extent of the illicit trade; the regime has been controversial from the start. (Read “Illegal Cigarettes: A Smoke Screen?” Published April 13, 2018). However, the tobacco industry welcomed its start on the grounds that it would help fight the “illegal” trade and eventually reversed its fate. (Read ‘Big Tobacco Is Winning Again,’ Posted May 2, 2018). With the introduction of the third tier of the tobacco tax in Pakistan, cigarette prices fell and consumption rose. As a result, cigarette production exploded through the roof in FY18, resulting in a tax loss of over 30 billion rupees, while cigarettes became over 20 percent cheaper in real terms.
These trends prompted independent studies to assess the volume of illegal trade in Pakistan. A research study (Economics of Tobacco Taxation and Consumer) – commissioned by the Pakistan Institute of Development Economics (PIDE) on the 34 of the tax rate) was 42.5 billion rupees in 2017-2018. Analysis of the PIDE study also shows that a 10% price increase will result in an 11% decrease in cigarette consumption, resulting in an individual saving of Rs.16 billion annually, which is a compelling argument in favor of the multi-tiered FED Rethink regime.
PIDE goes on to say that the return to a two-tier tax system with a higher FED as proposed will increase the average price of packets of cigarettes; reduce the prevalence of smoking among current and future smokers by 2.6 million people, thereby avoiding nearly one million premature deaths. These health outcomes are more than twice as high as with the existing three-tier system.
Another study conducted by the Pakistan National Heart Association and the Human Development Foundation and published on April 5, 2018 found that the volume of illicit trafficking was 9%. This study used the retail data only to select their study locale. But it did a very robust sample collection of its own.
There was no accurate and authentic estimate of the illegal tobacco trade in Pakistan. Most of the data was provided by the tobacco industry and is often exaggerated to favor favorable taxation and legislation. However, independent studies have repeatedly questioned such high numbers.
In 2018, FFO, a think tank, examined a research study to quantify the proportion of illicit tobacco use in ICT. A combined smoker survey and cigarette pack observation were used in Islamabad 30 clusters (1,200 HHs). The main results of the study showed that 15.8% of the cigarette brands are consumed in the federal capital Islamabad.
Many research studies conducted in Pakistan reveal eye-opening facts about how the tobacco industry manipulated fake statistics to pressure any government to oppose tobacco tax reforms and, most of the time, successfully obstruct the decision to raise taxes.
“The irony is that the tobacco industry makes a minimal contribution to the Pakistani economy.” Despite being one of the largest tobacco producing countries, unprocessed tobacco production accounts for less than half a percent (0.42) of the total value of agricultural produce, 0.25% of total acreage, and only 0.03% of agricultural employment (8,200 People) . Likewise, the share of the cigarette industry is 1.1% in mass production and less than half a percent (only 0.3%) in the industry.
By continuing their fraudulent strategy, the tobacco industry argues that the high taxation on tobacco products makes them expensive, so that smokers are tempted to buy smuggled, counterfeit and non-dutiable cigarettes. This increases the rate of illegal cigarette trafficking.
The tobacco industry also claims that the percentage of illegal cigarette trafficking in Pakistan reached 37.6% in 2020 according to the World Health Organization (WHO).
It’s funny to see the tobacco industry reported an annual loss of 44 billion in March 2021 due to illicit cigarette trafficking in Pakistan. Now, within three months, they claim that number has swelled to 75%, with new statistics of 77 billion losses.
To sell such fake numbers, they are massively and aggressively promoting this exaggerated statistic through mass media campaigns to deter the government from raising tobacco tax in the upcoming budget.
Researchers remarkably noted such an approach to pressure the government. A research paper “Big Tobacco’s Predictable Pre-Budget Tantrums in Pakistan” from October 2020 in Nicotine and Tobacco Research states that “Phillips Morris International (PMI) is currently funding a media campaign in Pakistan: #AwazUthaoMulkBachao # 44Billion4Pakistan, publicly, a commitment sign to save 44 billion Pakistani rupees (PKR) allegedly lost every year to tobacco trafficking. Clips of the campaign have been shown on television channels, a dedicated YouTube channel, and on Facebook and Twitter. This campaign continues the pattern of increased media activity Tobacco Industry (TI) in the run-up to the annual budget debates in the Pakistani National Assembly5-8, with the ulterior motive of undermining tax increases on tobacco products in the annual budget by influencing public narrative and putting pressure on politicians.
Recently, in late 2020, FFO, a think tank, carried out another market-based research study in the provincial capital Lahore. Peshawar notes that only 15.66% of brands of cigarettes consumed in Lahore and Peshawar did not meet the six-factor criteria; in connection with pictorial health warnings, textual health warnings, low price / tax evasion, age warning, manufacturer information and the printing of the sales price and therefore classified as illegal. The study also shows that 5.93% of smokers consumed smuggled brands of cigarettes, while 9.72% of smokers used cigarette brands with low price / tax evasion. These (9.72%) packs of cigarettes meet all the criteria of legitimate brands, but are sold at low cost (PKR 25-50), which makes them illegal, i.e. not cleared through customs. (The government has set a minimum price of Rs. 63 per pack).
The survey results showed that smoking is inversely related to academic qualification and price, and confirmed FFO’s earlier report on the same topic. Respondents appear to be less educated (66.38% or less) and 55.4% of smokers are willing to quit or reduce smoking if the price doubles.
In summary, it can be said that the significant result of the survey shows that the prevalence of illegal cigarette consumption in this provincial capital of 15.66% is well below the value of 37.6%, which is much touted by the tobacco industry.
The increase in tobacco taxes reduces tobacco consumption. In fact, increasing taxes on tobacco and increasing the price of tobacco is one of the most effective ways to reduce tobacco use. Prices affect virtually all cigarette consumption metrics, including per capita consumption, smoking rates, and the number of cigarettes smoked each day. Lower cigarette prices due to lower tax rates lead to significant losses to the state treasury. The increased consumption is also burdening the state treasury through increased health expenditure. In addition, there is a close link between the illicit cigarette trade, governance, illicit business, money laundering and terrorist financing.
Governments should fully implement the WHO Framework Convention on Tobacco Control and its Protocol on the Elimination of Illicit Trade in Tobacco Products. Pakistan applies a special excise duty system to cigarettes with two price ranges: low price and premium. The excise tax rate for economy and premium brands is 42.6 and 59.8 percent of the printed sales price, respectively, which leads to a significant excise tax difference between the two levels. Due to the high share of low-tax cigarettes in total consumption, the average share of excise tax is 45.4 percent of the sales price and is thus well below the WHO recommendation that the excise tax is at least 70% of the sales price. So it would be in the best interests of Pakistan’s public health and economy. Therefore, the government should seriously consider following the recommendations of the World Bank and WHO and increasing tobacco taxes, which are currently stagnating at 2017 tax levels.