ISLAMABAD: The reclassification of cigarettes by the tobacco industry following the 2017-18 budget is reported to have caused a loss of Rs15 billion to the exchequer.

According to Campaign for Tobacco Free Kids Pakistan, a non-government organisation, the tobacco industry should have contributed Rs37 billion till date but has only paid Rs22 billion in taxes because it reduced the prices of some leading brands and put them in the third tier to avoid tax.

However, sources in the tobacco industry claimed that prices were reduced to regain the market share occupied by illicit cigarettes.

Spokesperson for the Federal Board of Revenue (FBR) Dr Mohammad Iqbal said the lobby which is resisting the reduction in cigarette prices is involved in the business of non-duty paid cigarettes.

Before the announcement of current year’s budget, the Ministry of National Health Services (NHS) had suggested increasing the tax on cigarettes and recommended that the tax should be Rs44 for a pack of 20 cigarettes.

Tobacco companies lower cigarette prices to take advantage of third tax tier

However, in the 2017-18 budget, a third tier for the tax was introduced due to which the tax was reduced to Rs16 per pack of 20.

Health experts fear this will lead to an increase in tobacco consumption in Pakistan. A recent report of the State Bank shows that the production of cigarette has doubled.

The spokesperson for the Campaign for Tobacco Free Kids Pakistan told Dawn that before the announcement of the current budget, there were two tiers of tax and the announcement of the third tier has allowed the tobacco industry to avoid tax.

“Some of the leading brands of cigarettes have reduced prices in order to place their cigarettes in the third tier when they were in the second before. Because of this, the exchequer has faced a loss of Rs15 billion which will increase in the coming months,” he said.

“Those cigarette brands which were selling a pack of 20 cigarettes for between Rs58 and Rs62 have now reduced their prices to Rs48 to place them in the third tier so they pay less tax,” he explained.

He said that the increase in the sale of tobacco products is a loss for the state as it increases health expenses and also affects the productivity of the people.

In developing countries like Pakistan, the problems are more complex. If the head of the family gets sick they cannot provide for the whole family and also spend a lot on treatment.

Sources in the tobacco industry said there were originally three tiers of tax for cigarettes till 2013 and that two tiers were introduced afterwards.

They said the sale in cigarettes was decreasing and illicit cigarettes are taking their place in the market.

The revenue of the tobacco industry was Rs110 billion in 2015 which decreased to Rs85 billion in 2016 due to the trade of counterfeit cigarettes.

“There are currently over 200 illegal brands in the market due to which the decision to introduce the third tier was made.

“By reducing their prices, legitimate tobacco companies have started regaining their market share. However, some elements are trying to play with the statistics. We can assure you that the tobacco industry will put much more revenue in the exchequer that last year,” an official said.

Dr Iqbal said revenue collection was decreasing due to the sale of counterfeit cigarette so it was decided to introduce the third tier of tax.

“There is a lobby which does not want the sale of non-custom paid cigarettes to be stopped. If a legitimate cigarette is sold for Rs72 and a counterfeit one will be sold for Rs25, people will go for the cheaper cigarette. Counterfeit cigarettes are prepared in the Federally Administered Tribal Areas where it is difficult to take action against them. However, we are sure we will get a revenue of more than Rs100 billion from the tobacco industry,” he said.

According to an NHS report, tobacco use is the single largest preventable cause of diseases and deaths in the world. In Pakistan, tobacco causes around 108,800 deaths every year, which amounts to 298 deaths a day. The report says the health expenses in Pakistan have increase due to the use of tobacco.

Published in Dawn, February 7th, 2018