n a recent flurry of newspaper articles, lobbyists for the tobacco industry have urged the government to review its policy of imposing heavy taxes on nicotine pouches and smokeless tobacco products to counter a surge in illicit trade.
The argument, repeated for many years before every budget cycle, is designed to forestall stricter regulation and to ensure that the industry’s profits are not curtailed. Meanwhile, the Framework Convention on Tobacco Control, to which Pakistan is a signatory, encourages all parties to require the tobacco industry to pay at least 70 of the sale price in taxes.
At the heart of this narrative lie a series of misleading statistics. The industry contends that increased duties, such as a 2,500 percent hike on vape products, have forced businesses like the Pakistan Tobacco Company to withdraw from the formal market. The claim is false. No taxes were imposed on any product in the last budget.
It is further claimed that the vacuum has allowed smuggled products to dominate the market, eroding state revenue by an estimated Rs 34 billion in a year.
The argument that heavy taxation leads to the proliferation of illicit products is neither new nor unique to Pakistan. However, it is a self-serving claim. The industry’s pivot to smokeless products, vaping devices, oral nicotine pouches and other alternatives, is a part of a broader strategy aimed at recasting itself as a proponent of harm reduction.
However, the harm reduction strategies are subject to “policy support” from governments and public health regulators. This is hardly the same as an industry voluntarily embracing measures to reduce the harm caused by its products. World Health Organisation warns that the tobacco industry manufactures products that kill nearly half of its users and has to entice children and the youth to ensure sustained profits.
A close look at the numbers exposes the charade. In an earlier deal, the tobacco industry managed to secure a tax rate of Rs 1,200 per kilogramme on nicotine pouches that had not been regulated by any ordinance or SRO by the Ministry of Health. While sales generated Rs 9.6 billion, the tax contribution from the product line amounted to less than Rs 90 million. Had the products been taxed fairly, the government could have collected billions of rupees. Just banning these products could save the nation a reduction of Rs 715 billion in tobacco’s health burden.
The tobacco industry claims that 54 percent of cigarette consumption falls outside the formal economy. The numbers are inflated to support a false narrative. The fact is that two major tobacco companies share 98 percent of the sales in Pakistan. Also, illicit tobacco is an enforcement issue; and not a taxation issue. The illicit market thrives not because of taxes, but due to a failure of enforcement. The issue is rooted in governance, not in the tax rates imposed on tobacco products.
The situation is comparable to a leaky bucket. The government aims to fill the bucket with revenue through taxation. However, the industry claims that high taxes only serve to widen the holes through which precious funds escape. The analogy misses a critical point: the leak is not caused by high taxes, but by a failure to enforce regulatory measures. The tobacco industry’s repeated appeals to the authorities to “clamp down” on illicit trade are, in essence, an attempt to shift the blame away from their own practices. Rather than addressing the integrity of their own supply chains, the industry calls for a crackdown on smuggling, a problem they helped create by blurring the line between regulated and unregulated markets. Internal Revenue Enforcement Network, a subsidiary of FBR has a long list of tobacco products manufactured by the big tobacco and sold as illicit.
The industry contends that increased duties, such as a 2,500 percent hike on vape products, have forced companies like the PTC to withdraw from the formal market.
Even more disingenuous is the industry’s claim that a reduction in the cultivation of tobacco will lead to a corresponding drop in taxable revenue. Last year, when the industry claimed lower crop yields and predicted diminished tax collections, the figures put out by Stock Exchange, Pakistan Tobacco Board, the FBR and Bureau of Statistics did not support its claims.
The government needs to set the target for tobacco tax collection at Rs 500 billion or more. Rather than accepting responsibility for their part in shrinking the regulated market, the industry is talking about illegal products. This narrative is a ploy designed to stave off further regulatory measures.
A global shift from combustible cigarettes to smokeless alternatives is currently under way. However, this transition is being manipulated for profit rather than public health. The industry claims that by 2035 more than half of its revenues will come from smokeless products. The government needs to estimate the consequences of an “addicted youth.” Yet, this repositioning is without a willingness to meet the same fiscal responsibilities. Their selective acceptance of taxation, a mere pittance on nicotine pouches, for instance, is an indication of their broad strategy of evading regulation.
Critically, the narrative that heavy taxes are stifling the formal market and boosting illicit trade is a myth that obscures the industry’s complicity in both creating and benefiting from the underground market. Rather than using higher taxes to promote public health and ensure that all participants contribute their fair share, the tobacco industry uses such arguments to delay necessary reforms. The claim that the industry’s plight is exacerbated by ill-conceived taxation ignores the underlying reality that tobacco taxes are the most powerful tool to reduce consumption and increase revenue. They serve to disincentivise harmful practices and to ensure that the public does not bear an undue burden from the externalities of tobacco use.
The time has come for Pakistan to adopt policies that reflect an awareness of the entire cost of tobacco consumption. Robust taxation, enforced transparently and complemented by a strong regulatory framework, is essential, not only to recoup lost revenue but also to safeguard public health.
Public health advocates and scholars must insist on an honest discussion about tobacco control. They must confront the industry’s duplicity head-on, exposing how it manipulates statistics and co-opts regulatory frameworks to its advantage.
The narrative put forth by the tobacco industry is a dangerous diversion from the reality of tobacco control. It is high time Pakistan rejected spurious claims and embraced a taxation regime that holds the tobacco industry accountable for its actions.
The writer is head of the Centre for Health Policy and Innovation at the Sustainable Development Policy Institute. He can be reached at wasif@sdpi.org
