World No Tobacco Day We need food, not tobacco
YET another 31 May – World No Tobacco Day has arrived urging us to work for making our world free of the addictive poison called tobacco. During last 12 months, Pakistan has seen some major developments. The ravaging floods in 2022, the record inflation, and the continuous political turmoil, all have jolted our economy and the prices of food items are at all-time high. Not everything has been negative.
In an attempt to stabilize the economy, the government’s made decision of increasing Federal Excise Duty (FED) on cigarettes in February 2023, additional 11.3 billion FED revenue was obtained in fiscal year 2022-23 which is an increase of 9.7% from the previous year. Furthermore, an additional 4.4 billion VAT revenue was obtained in fiscal year 2022-23 which is an increase of 11.5% from the previous year. This additional 15.7 billion revenue makes up 0.201% of our GDP which is a significant boost for a struggling economy like Pakistan.
This decision has also lowered the demand and supply of cigarettes. Since the increase in FED in February 2023, there has been 31.7% decline in declared production of cigarettes in fiscal year 2022-23 compared to the previous year whereas the government generated additional revenue. This reduction will decrease the non-communicable diseases like cancer, diabetes, heart disease, stroke, and chronic lung diseases which kill around 170,000 people yearly.
However, like the previous occasions, tobacco industry used deceptive emotional tactics that this decision by the government will send “millions” below the poverty line. Illicit trade of tobacco products is a reality but it is overstated by the tobacco industry. In reality, the tobacco industry practices underreporting where they hide their actual production figures to avoid taxes. Cigarette manufacturers also shift the tax burden to consumers to increase their own profitability (i.e. raising prices more than the increase in tax). According to the estimates, due to over-shifting, the excise tax share in retail price remains at 51.6%, lower than the widely-accepted benchmark of 70%.
Tobacco industry’s claims of being a major provider aren’t justified either. Despite being one of the largest tobacco-growing countries, tobacco is not a major crop in Pakistan. It accounts for less than half of a percent of the total value of agricultural produce and only 0.2% of the total area under cultivation. Similarly, the share of wages in the total value of the output of the cigarette industry is 1.14%, which is much lower compared with other sectors of the economy—the average share of wages in the total value of the output of all sectors of the economy is more than 10%. This indicates that the size of the income multiplier for the cigarette industry is relatively low.
The statistics show that an industry which shamelessly produces and sells deadly products and operates only for self-profit has no moral grounds on talking about financial woes of common citizens. In fact, without tobacco products the world will be much better. On an average, Pakistani smokers spend 10% of their average monthly income on cigarettes. 25.3% of households in the lowest income group smoke cigarettes compared to 16.2% of households in the highest income group. This precious money as well as the amount saved from tobacco induced diseases, can be utilized for essential items such as food.
In order to save people’s health and finances remain protected from tobacco the government needs to index the FED rates to inflation for the fiscal year 2023-24.Over-shifting the recent tax increase by the tobacco industry indicates the potential for raising prices, which should be benefit from upon by the government instead of leaving it to the tobacco industry. Track & Trace System of Federal Board of Revenue (FBR) provides an excellent opportunity for government to tackle the issue of whatsoever ever of taxes and illicit trade, which needs to be extended to all other cigarette manufacturing companies currently not integrated.
—The writer is Programme Manager, Society for the Protection of the Rights of the Child, SPARC, Islamabad.
Email: khalilbnul@gmail.com
