The federal government’s remarkable decision to impose ‘sin tax’ on tobacco sector may have triggered a heated debate in Pakistan yet the said tax is not a new phenomenon and is effectively implemented in more than 50 countries worldwide.
Recently, the government announced to introduce sin tax on cigarette products in what came as a landmark move aimed at not only discouraging smoking but also improve revenues from the tobacco sector.
Generally, the move has received a positive public response given that it would help curtail smoking, a major causes of fatal diseases which claim the lives of millions of people globally. This would also help to tighten noose around tobacco companies that make profits in billions but hardly contribute anything significant to the national kitty.
However, some quarters that are apparently backed by powerful tobacco lobby are opposing the implementation of sin tax through a well-orchestrated propaganda. Planted campaigns are being run on social media to make mockery of the term ‘sin’ being applied as tax and ridiculing it on moral grounds. Moreover, paid campaigns are being sponsored by the powerful tobacco lobby to build a false narrative; that the application of sin tax would promote black tobacco market and that the consumers who habitually smoke would turn to illegal and smuggled non-taxed cigarettes.
Regardless of the planted moves by the tobacco companies against the sin tax, the reality is altogether different. In over four dozen countries around the world including the developed states like the US and the UK, sin tax is effectively applies on tobacco products and has proved highly successful in terms of improving revenues and discouraging smoking. Other countries where the sin tax has proved thoroughly successful include Mexico, South Africa, Philippines and scores of others. By implementing sin tax, these countries have ensured a drastic decline in the number of smokers due to increase in the prices of cigarettes that ensues sin tax imposition. At the same time, this has helped generate revenues.
A recent research study in the US suggested that one per cent increase in the prices of tobacco or alcohol leads to 0.5 per cent decline in their sales.
Experts believe that by benefiting from other countries’ experience, Pakistan can strengthen its economy and discourage smoking with the introduction of sin tax. Contrary to the disinformation being planted by the tobacco lobby, the fact of the matter is that Pakistan is already one of the major tobacco black markets in the world. Every nook and corner of Pakistan is flooded with foreign smuggled and local tax evaded cigarettes. Billions of rupees are annually lost to illicit tobacco trade.
Additionally, the controversial measures the government has introduced to facilitate the multinational tobacco lobby in Pakistan have added insult to injury; by helping the big tobacco brands earn in billions without being sufficiently taxed. Since last year, the FBR has, although, launched a crackdown against illicit cigarettes, the tax machinery needs to be strengthened to take on big tobacco brands that are legitimately operating in Pakistan but pay peanuts in taxes.
The glaring flaws in taxation mechanism have allowed the tobacco companies to flourish at the cost of Pakistan’s economic interests. The case of some leading multinational tobacco brands can best be narrated in this context. In the recent years, multinational tobacco brands showed mega losses of millions of rupees in a bid to justify large-scale downsizing of their staff and closure of their factories.
However, after the introduction of highly controversial third-tier tax slab by the former government in the fiscal year 2017-18, these companies have showed profits in their earnings.
The third-tier tax slab has benefitted the major tobacco companies without doing any good to the national kitty in the form of revenues.
In order to respond to this situation, Pakistan has a viably convenient option at hand; imposition of sin tax. The government needs to tighten noose around all those elements that are behind negative campaign against the sin tax and ensure that multinational tobacco brands are made to pay this tax. At the same time, the controversial measures like third-tier tax slab on cigarettes need to be immediately abolished. This is vital to strengthen the national economy.