The Pulse

Tobacco in Pakistan: Deadly Economics

Pakistan must balance the revenue from the tobacco industry with the health of its citizens.

Tobacco in Pakistan: Deadly Economics
Credit: PIxabay

Due to smoking-induced causes, 108,000 Pakistanis die annually  and 5,000 patients are admitted to hospitals daily. Premature death due to smoking deprives families of income, raises health care costs, and impedes Pakistan’s development. On average 298 persons die daily from smoking-related diseases; the daily collection of smoking-related sales tax and excises works out to an average of Rs 298 million daily. In a manner of speaking, for every person who dies due to smoking Pakistan collects taxes of almost one million rupees.

The hard truth is that the tobacco industry provide important revenue, both for companies and the government. An analysis of the revenue from the tobacco sector for the financial year ending on June 30, 2016 reveals that net collections from the consumption of tobacco under the general domestic sales tax totaled Rs 23.77 million against Rs 20.98 million for the preceding financial year, showing an appreciable rise. This amount represents 3.7 percent of the entire general domestic sales taxes collected by the Federal Board of Revenue for the financial year 2015-2016. Meanwhile, the operating profit of the companies involved in the sale of cigarettes (not including illicit sales) is around Rs 9.5 million.

The targets of the United Nations Sustainable Development Goals include a target to strengthen the implementation of the World Health Organization Framework Convention on Tobacco Control (WHO FCTC) in all countries, as appropriate. The WHO FCTC is an evidence-based treaty that reaffirms the right of all people to the highest standard of health. The WHO FCTC characterizes a paradigm shift in developing a regulatory strategy to address addictive substances, now emphasizing demand reduction strategies. The core demand reduction provisions in the WHO FCTC, contained in Articles 6 to 14, include price and tax measures to reduce the demand for tobacco.

Pakistan’s Ministry of National Health Services, Regulations, and Coordination needs to comply and enforce Article 11 of FCTC, requiring a health warning to be printed on the front side and the back side of the cigarette packets and printed cigarette outers. The health warning,  covering 85 percent of the total package (up from a previous 40 percent) was to be printed on cigarette packets starting March 30, 2015. It has been alleged in the press that the government is delaying enlarging the health warnings because it favors the tobacco industry, yet no convincing evidence has been presented for this claim. In the end, an enlarged health warning may not serve as a deterrent to smoking; as mentioned earlier, cigarette sales have increased despite current health warnings covering 40 percent of packaging.

Instead, Pakistan should look to reform its tax incentives. Revenues collected from sales taxes reach companies and the state; however, the tax directly impacts the end consumer (ie. the smoker) who also bears the costs of medical treatment if he contracts a smoking-induced disease. The companies involved in the business of cigarette sales merely pay a tax on company income, which works out to 2 percent of the turnover. This glaring anomaly of the burden of taxation between the companies selling cigarettes and the hapless consumer calls into question the resolve of the government of Pakistan to comply with FCTC, to which Pakistan is a signatory.

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Accordingly, it is high time that the tax regime in Pakistan be reviewed to reduce the profitability of tobacco producers and manufacturing entities, to discourage the production and sales of tobacco and cigarettes rather then increasing the incidence of taxation on smokers. We should not assume that there will be a drastic rise in unemployment if the production and sale of tobacco is reduced, as industrial processes are presently automated and digitized, unlike a decade ago.

In the end a cold balance has to be struck in Pakistan between mortality and economics.

Razeen Ahmed has a Bachelor of Science in Business and Management from the London School of Economics and Political Science and is presently doing a Masters in Sustainable Development at SOAS.