EDITORIAL: The illicit sale of cigarettes in the country continues to be a pervasive issue, having a detrimental impact on government revenues as well as on public health.
The Pakistan Tobacco Company’s latest market trend report, released on March 12, underscored this issue in some detail, highlighting the worrying pattern emerging out of southern Punjab where the sale of smuggled, tax-evaded and counterfeit cigarette brands has seen an increase to around 60 percent, causing a loss of billions of rupees to the national exchequer.
While increases in the excise duty have definitely been a factor in encouraging consumers to switch to cheaper, tax-evaded and smuggled options, it is the lax response of the relevant regulatory bodies and law enforcement agencies that should be put under the scanner.
Their poor performance has led to a situation where the government-notified minimum price of a pack of cigarettes of Rs127.44 is being freely ignored, and a majority of the brands are being sold at prices ranging from Rs80 to Rs130. In addition, rules overseeing the cigarette trade that prohibit the offering of reward schemes are also being violated, further exacerbating the situation.
Most importantly, it is clear that the much-touted technology-based surveillance Track and Trace (T&T) system that the FBR had first introduced in the tobacco sector in July 2022 has failed to have the desired impact. This system had aimed to combat the counterfeit tobacco trade through the affixation of stamps and barcodes on cigarette packs at the production stage, enabling the FBR to track the items throughout the supply chain.
The illicit cigarettes being sold in southern Punjab, however, lack both the T&T stamps and the graphic health warnings they are legally required to carry, demonstrating the ease with which the law is being violated, with law enforcement agencies failing to do the minimum required of them by conducting raids and seizing these illegal products.
Given the dismal state of the national exchequer, it is a travesty that despite the passage of 18 months since the T&T system was first introduced, the majority of cigarette manufacturers have still not fully implemented it.
Until November last year, only two out of the around 40 or so manufacturers operating in Pakistan had implemented the T&T system fully, while one had executed it partially.
This state of affairs will see the illicit sector’s market share growing from 37 percent in fiscal year 2021-22 to approximately 63 percent by the end of the current fiscal year, causing a potential revenue loss of around Rs310 billion in 2023-24.
While the T&T system definitely has the potential to address the challenges of enhancing tax compliance and increasing revenue, a more comprehensive approach is clearly needed to address the problem at hand. Apart from ensuring the T&T system’s across-the-board implementation through effective enforcement – ensuring no pack of cigarettes is sold without legitimate T&T stamps – what is also needed is effective monitoring of distribution networks and stringent measures implemented at our porous borders to prevent the entry of smuggled tobacco products into the country.
The consequences of the illicit cigarette trade cannot be overstated. Apart from adversely impacting government revenues and fair competition practices, these unregulated products evade quality control measures, turning an already addictive item into an even more harmful health hazard. Moreover, the affordability of illicit cigarettes potentially makes them more accessible to vulnerable populations, including minors, further exacerbating tobacco-related health issues.
It is clear that a multifaceted approach is needed to counter illicit cigarette trade, combining stringent regulatory measures, agile law enforcement responses, strengthened border controls, and stricter penalties for offenders. This can help ensure that we are able to protect government revenues as well as address important public health concerns.
Copyright Business Recorder, 2024
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