Cigarette Smoking is harming Pakistan Economy

It turns out cigarette smoking is not just bad for your health but it’s bad for Pakistan economy as well.

According to Bloomberg, the sales of illicit cigarettes cost the country Rs 24 billion of tax evasion in 2014, as per the market research company Nielsen. The current government increased taxes on cigarettes and other consumer goods last year in order to meet the target imposed by the International Monetary Fund (IMF).

However, this move seemed to have backfired as higher taxes have spurred the growth of black markets, as local cigarette brands are taking the share away from the likes of International brands i.e. British American Tobacco Plc and Phillip Morris International Inc. Simply because they cost less than an authorized cigarette packet, which has a tax imposed of Rs. 36.

“There is massive tax evasion,” said Haroon Akhtar Khan, a special assistant to PM Nawaz Sharif on revenue. “We have raided retailers and put up banners at different places, warning sellers of arrests. Now the pressure is going to increase."

The international players in the country’s cigarette market however, hold a view in contrary to the government policy.

“Excessive tax increases over the years have led to huge price increases way above the affordability of the consumer, who in turn opts for cheaper alternatives from tax evaders,” said Sekar Menon, regional director for corporate affairs at Philip Morris International, the makers of Marlboro brand. “Unless this issue is addressed to create a level playing field, the long term sustainability of the legitimate tobacco industry may be at risk.”

The report added that exercising tax stamps to tobacco products, is instrumental in combating illicit trade, according to a paper published last year by the US Centers for Disease Control and Prevention.

However, in a country where less than 1 percent of the citizens pay income taxes as per the government, such endeavors are harder than imagined.

“Pakistan can’t regulate medicines, doing it for cigarettes is much more difficult,” said Faisal Bari, associate professor of economics at Lahore University of Management Sciences. “The state lacks the ability to enforce.”