The committee constituted by Minister for Finance Ishaq Dar to review the issue of pictorial health warnings on cigarette packets is expected to meet on Tuesday (May 12) to discuss revenue loss and alternate measures, due to increase in size of Graphical Health Warning (GHW) on cigarette packs from current 40 to 85 percent from March 31, 2015.
Sources said that the meeting will take input of all participants on the said issue particularly tax authorities to share revenue implications of the said decision in 2015-16. It is learnt that Lahore-based retailers association has protested against the decision for increasing size of health warnings to 85 percent. The association has requested for a meeting with the Inter-Ministerial Committee that has been constituted by the Government of Pakistan to review all matters related to 85 percent health warning issue.
The cigarette manufacturers have expressed grave concerns over the government's decision to increase the size of the health warning from 40 to 85 percent. The manufactures have conveyed their concerns to the Federal Board of Revenue (FBR) and Ministry of Health on the said issue. According to them, current size of the health warning in Pakistan is 40%. Manufacturers still have 60 percent space available on the front and back of the cigarette packs. This available space is used to deploy special printing features for distinguishing their genuine packs from counterfeit packs. Once the size of health warning increases to 85 percent there will hardly be any space left to put in special printing features to ensure the authenticity and genuineness of packs. Global experience shows that packs with large health warnings are very easy to counterfeit. 'Even if retailers try and make effort not to keep smuggled and noncompliant packs with no health warnings at all, how will they actually know that the packs they are selling are not counterfeit', said an industry expert while talking to the scribe.
This is not a problem specific to Pakistan. Countries like Canada, Singapore, Malaysia, and Hong Kong, are recognised for having the best law enforcement environments in the world. Even these countries have not been able to fully eliminate the illegal cigarette supply chains. The share of illegal cigarettes in these countries can be as high as Malaysia (35 pecent), Hong Kong (33 percent), Singapore (19 percent) and Australia (14 percent). According to report by KPMG in October, 2014 Australia faced a jump in illicit market share from 11.5 percent in 2012 to 14.3 percent in the first half of 2014, after introduction of plain packaging. The reason was that packs with large health warnings in Australia were easy to counterfeit, they added.
Meanwhile, an officer working in Customs Intelligence Unit of Federal Board of Revenue explained that there are two key reasons why the enforcement levels are not high in Pakistan. First, there is lack of inter-agency co-ordination. To raid and seize smuggled and noncompliant cigarette packs, co-ordination between border law enforcement agencies like Rangers, FC, and local police, is required. Cigarette smuggling is not a priority for enforcement agencies that are busy with more serious issues of law and order, both on the borders and inside the country. Secondly, whenever laws are enforced at retail level there is resistance and protest from market associations. Resultantly, the shopkeepers go for a shutter down strike and create law and order situation, or political intervention reverse the enforcement action.
According to research published by Nielsen Pakistan in 2014, there are more than 500,000 cigarette retail outlets in Pakistan. These outlets employ more than 200,000 people in Pakistan. This is source of livelihood for more than 700,000 people across the country. Putting all these people in a situation where they have to make difficult choice of compliance and losing business or regulatory avoidance and making profits does not seem a sound public policy decision.
This research also states that Pakistan has the widest retail outlet dispersion in South Asia area. It means the shops are not clustered together like other countries in the region, for example, in Bangladesh you can find hundreds of retail shops in one single market. According to this research, in Pakistan there is approximately one retail outlet at every 0.6 kilometers. Out of the 500,000 cigarette retail outlets, 62 percent are actually located in rural areas while only 38 percent shops are located in urban areas. Keeping in view the size and the fragmented nature of retailer universe, the task for law enforcement agencies to ensure compliance with the law will be gigantic.
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