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FBR succumbs to multinational Tobacco giant, likely to introduce 3rd taxation tier.

Islamabad -- Recently Federal Board of Revenue (FBR) succumbed to Multinational Tobacco Company's pressure and has reportedly approved the draft to introduce 3rd taxation tier for the Pakistan's tobacco industry.

Multinationals, with an agenda to decrease the price of their own cigarettes, have cleverly duped FBR into accepting the 3rd tier proposal with a false promise that FBR revenues would drastically improve.

As per The Network for Consumer Protection (TNCP) report, 2017, Pakistan is headed towards a darkening tobacco epidemic era shaped up by 24 million adults aged 15 or above using tobacco.

Indicated by statistics, this is one of the highest prevalence of tobacco use in the world.

The Framework Convention on Tobacco Control (FCTC) is the first ever international treaty negotiated under the auspices of the World Health Organization (WHO) to which Pakistan is a signatory since 2005. FCTC requires Pakistan to implement appropriate price and tax measures to be adopted to reduce the consumption of tobacco products. The introduction of this 3rd tier is, however, completely antithesis of the FCTC treaty and may expose Government of Pakistan to adverse notice of WHO.

As per the TNCP reportin Pakistan the high prevalence of tobacco use kills more than 110,000 people each year which is approximately 300 deaths every day. FBR, in hopes of achieving their target revenues, has bargained against the lives of millions of Pakistani at risk with the introduction of this 3rd tier. Lower price coupled with low tax and current 2 layered tier systems have already made cigarette prices lowest in Pakistan among South East Asian region, and the 3rd tier would logically result in smoking epidemic amongst the youth.

If the proposed 3rd Tier is approved in the Budget, the current pack of Marlboro cigarettes which costs PKR 135 (previously coming under the higher tax tier) is expected to fall under the lower tax tier allowing the cigarette manufacturer to sell the same pack for less the 100 PKR. Marlboro, being the favorite of Pakistani youth would become more affordable and increase cigarette consumption many folds.

This 3rd tier is also being proposed as a solution to curb smuggled cigarettes, which as per TNCP reports finding is not dependent on cigarette prices but reflective of the fact that how easy it is for smugglers to operate in a country, the participation of the tobacco industry in helping the smuggler, how well crime networks are organized, the likelihood of being caught, the punishments, and Corruption levels prevalent in the country.

FBR fails to take effective measures against such conditions had to resort to adopting a policy that is only beneficial to multinational sales and grossly devastating to health of the young Pakistani's.

As per economic consequence, it is expected that such policy would fail to generate enough revenue for FBR as cigarette prices tend to be inelastic. In fact, FBR is potentially giving up on chances of making more revenue because of the introduction of this new 3rd tier as total Federal Excise Duty (FED) collected from sales of these cigarettes would amount to less revenue compared to revenue collected from cigarettes if higher FED is charged.

Such policy would also result in monopolistic character of multinational tobacco companies who can then exploit farmers, distributors and consumers. This policy would also lead to massive downsizing and closure of nascent local tobacco industry which employees thousands.

Overall the impact to the economy of such policy would unimaginable, while multinationals would easily shift their profits abroad without even taking the blame of such widespread destruction of the local economy where millions are employed and income levels of the laborers have progressively enhanced.

It is important to point out here the fact that scientific research findings have found the effectiveness of increased taxation, in different methodology. It has been noticed that every 10% increase in cigarette prices reduces youth smoking by about 7% and total cigarette consumption by about 4%. All such considerations need to be analyzed properly before ordering drastic changes in tobacco world.
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Publication:The Frontier Star (Northwest Frontier Province, Pakistan)
Geographic Code:9PAKI
Date:May 10, 2017
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