Ever since the PTI government took charge, severe reservations have been raised on their pre-election rhetoric of broadening the tax base rather than further taxing the current taxpayers however, post-elections the only visible approach seen has been the latter.
It is an established fact that high taxes will create an incentive to evade taxes and tax evasion can only be curtailed where governments have the enforcement capability which is also corruption free. Unfortunately for Pakistan, the enforcement agencies are resource starved and corruption within there seems to be a constant challenge. Any government policy decision which is taken without considering the ground reality is bound to fail and this seems to be the case for the tobacco tax policy in Pakistan.
The fact that there is tax evasion in the Pakistani tobacco sector is no secret and the irony is that these cigarettes are manufactured in Pakistan. A pertinent question arises: why nothing is being done to stop them? With the recent increase in tobacco taxes past trends and evidence confirm that it will lead to an increase in illicit cigarette trade even though overall cigarette consumption remains the same. 13 billion illicit cigarettes were sold in Pakistan during 2010, the number grew to 32 billion in 2017 and this has been primarily due to the increase in tobacco taxes and lax enforcement. Rather there is also a view that there is a sustained campaign by the illicit tobacco operators to ensure that tobacco taxes are raised so that there is a continued growth in demand for their cheap tax-evaded cigarettes.
Both Imran Khan and Asad Umar have publically acknowledged the wide presence of illicit cigarettes in the country, however, the only measure that has been taken so far, i.e., tax increase will potentially exacerbate the illicit cigarette issue. There is no visible urgency on the government's end to tackle the main challenge to tobacco control which is illicit cigarettes.
During the budget speech, the Finance Minister stated that cigarettes are the cheapest in Pakistan - and he may be right. You can today purchase a pack of tax-evaded illicit cigarettes in Pakistan for PKR 25. So yes cigarettes are extremely cheap in Pakistan - but what is Ministry of Finance doing to stop that? Shockingly, instead of collecting more taxes from the illicit sector as promised by the Ministry of Finance, the tax contribution from the small manufacturers during the past 5 months has halved as compared to the same period of last year.
The Minister of Health has been very vocal on tobacco control however not a single statement has been made by him on illicit cigarettes in Pakistan. For the Minister of Health this is not an issue that can be ignored! As stated by the Prime Minister almost half of the smokers in Pakistan smoke cheap illicit cigarettes. This means that out of 12 million cigarette smokers in Pakistan almost 5 million smokers are buying a 20-cigarette pack for a meagre PKR 25.
Now, the Minister of Health instead of taking measures to curb these illicit cigarettes operators is proposing higher taxes on cigarettes which we all know will shift more and more smokers to cheap illicit cigarettes. Increasing taxes on cigarettes can only achieve its desired objectives in countries where there is little or no presence of cheap illicit cigarettes. Unfortunately that is not the case in Pakistan which according to recent studies, today has the highest number of illicit cigarettes consumed in Asia.
We as a country need to accept the fact that with more than 30 billion illicit cigarettes being sold in Pakistan the biggest threat to tobacco control is illicit cigarettes. They are not only subsidizing cigarette smoking but also facilitate youth initiation by selling cigarettes at PKR 25 per pack. One wonders that how the Ministry of Health is not concerned about a sector which is blatantly flouting and violating all the laws legislated by the Ministry including discounting and advertising.
While it is the government's prerogative to introduce taxes and regulations it is also their duty to focus more on result-oriented approaches and tackle the real issues that Pakistan faces rather than going for populist measures. Let's hope that the government's approach to tobacco control is effective and evidence based and not just another auction of buffalos.
(The views expressed in this article are not necessarily those of the newspaper)