New study reveals Track and Trace system kept illegal trade of tobacco products at 15%

ISLAMABAD - Health activists have appreciated Prime Minister Shahbaz Sharif's directives to curb down illegal trade of tobacco products in Pakistan.

In a press release shared by the Society for the Protection of the Rights of the Child (SPARC), the health activists mentioned that the Federal Board of Revenue's Track and Trace system has kept illicit trade from going above 15%.

This system should be implemented in all companies to achieve further benefits. The activists also mentioned that during pre-budget seasons, the tobacco industry uses a blown-up percentage of illicit trade to influence the policymakers from raising taxation according to the rate of inflation.

Malik Imran, country head, Campaign for tobacco-free kids (CTFK), mentioned that tobacco-induced disease causes an annual economic burden of 615 billion which is 1.6% of Pakistan’s GDP. He said that an industry which is causing such an unprecedented level of damage to public health and the economy, brazenly claims that any damage control move is against Pakistan’s interest.

Imran mentioned that every budget season, the tobacco industry uses the illicit trade excuse to ensure that tobacco taxes are not increased. This is a cover used by the tobacco industry to divert people from underreporting. These companies underreport their production and then sell their non-reported products in the illicit market, causing billions of losses to the national exchequer. He quoted the findings of the latest research on illicit cigarettes in Pakistan which revealed the percentage of illicit packs of cigarettes was around 15%.

Imran mentioned that the tobacco industry should not have any problems paying the additional taxes because it never pays them from its own coffers. Tobacco companies have increased their net-of-tax prices. Due to over-shifting, the excise tax share in retail price remains at 51.6%, lower than the widely-accepted benchmark of 70%.

Dr Ziauddin Islam, Former Technical Head, Tobacco Control Cell, Ministry of Health, said that tobacco is the largest silent killer in Pakistan as above 170,000 people die due to tobacco use each year. He explained that increased prices bring a decrease in production and consumption which decreases the health cost burden. Although there has been a 31.7% decline in production declared by TI in the fiscal year 2022-23 compared to the previous year which is a win-win condition, keeping in view of the aim of tobacco control to decrease consumption coupled with an increase in revenue generation.

He mentioned that due to the government’s decision of increasing Federal Excise Duty (FED) on cigarettes in February 2023, an additional 11.3 billion FED revenue was obtained in the fiscal year 2022-23 whereas additional 4.4 billion VAT revenue was obtained. This additional 15.7 billion revenue makes up 0.201% of our GDP which is a significant boost for a struggling economy like Pakistan.

Khalil Ahmed Dogar, Program Manager (SPARC) said that the tobacco industry claims that it does state-of-the-art research to present solutions to Pakistan’s economic woes. In reality, the only state-of-the-art thing the tobacco industry produces is the killer products that are jeopardizing Pakistan’s health and economy. It is a fallacy to think that Pakistan can prosper while tobacco products are at large. 

Khalil mentioned that the Track & Trace System of the Federal Board of Revenue (FBR) provides an excellent opportunity for the 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.

Once this step is achieved, yet another excuse for the tobacco industry will be put to rest. He further stresses the need for active tax administration by authorities to curb the existing burden of illegal production and sale of cigarettes.