ISLAMABAD: Taxing tobacco products would generate more than Rs200 billion in the next three years, which the government could use to reduce the budget deficit, and protect young people from a number of diseases, participants of a pre-budget session on tobacco taxation suggested on Saturday.

The session was organised by the Society for the Protection of the Rights of the Child (Sparc).

Malik Imran, a representative of the NGO Campaign for Tobacco Free Kids, shared a proposal on tobacco tax reforms and recommended solutions for the federal government in a short term (fiscal year 2019-20), medium term (fiscal year 2020-21) and long term (fiscal year 2021-22) basis.

According to his calculations, tax reforms would generate around Rs205.9bn over three years, equivalent to an average annual increase in total tax revenue of about 52pc (around Rs32.3bn per year).

Mr Imran also anticipated an increase in in the excise tax share in the price from about 45.9pc currently to 57.6pc, somewhat closer to the 70pc level recommended by the World Health Organisation.

Sharing the proposed model, he said that the tax reform model would contribute to an almost 42pc reduction in adult cigarette consumption.

He added that the volume of illicit trade is very low, despite claims by the tobacco industry, and the data presented by the industry to the government can also be challenged.

He added that in Pakistan, the tobacco industry claims that Pakistan has the highest level of illicit trade, but in Malaysia the tobacco industry has said that Malaysia has the highest level of illicit trade.

Sparc Executive Director Sajjad Ahmad Cheema said the tobacco industry caused the national exchequer Rs153bn in losses between 2016 and 2019 by being awarded a low tax rate and adjusting the prices of their most sold brands. Nearly 90pc of all the brands consumed in Pakistan were taxed in the ‘low’ tier under the previous tax system, he said.

He added: “If their prices had remained the same, [89pc of them] would have automatically been reclassified as ‘medium’. However, we find that Big tobacco companies made deliberate adjustments in prices resulting in a significant price reduction, causing in 88pc of the market being taxed at the new lowest rate in the current tax system.

“After the introduction of the third tier, around 160bn cigarettes were produced between May 2017 and March 2019. Big tobacco companies share 75pc of the total market, which means they were able to sell 120bn cigarettes in the same period. Loss of revenue due to introduction of a third tier is Rs77.85bn from 2016 to 2019. Loss of revenue due to price adjustments is Rs75bn from 2018 to 2019.”

Other speakers expressed confidence that recommendations for tobacco tax reforms, if adopted by the government, would prove to be an effective policy that would simplify Pakistan’s tobacco tax system, reduce the government’s administrative costs and further align with global best practices.

The proposal could also significantly reduce tobacco use and save lives, while raising additional revenue that could fund government health programmes including tobacco control programmes.

Published in Dawn, April 28th, 2019