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Deceptive marketing continues as far as government measures on tobacco control are concerned. During the budget speech, the newly-minted finance minister announced raise in FED for three tobacco price tiers. But public health advocates, who have been lobbying the parliament and the cabinet to make cigarettes dearer, shouldn’t get their hopes up. Cigarettes won’t become too expensive come July.

First, the government has proposed to keep in place the third, bottom FED tier that was introduced in FY18. In this lowest tier, cigarette packs were allowed in the previous finance bill to retail below Rs58.5 per pack, with an FED of only Rs16 per pack. (Prior to that, the bottom tier in the two-tier FED regime carried FED of Rs33 per pack for cigarettes selling below Rs88 per pack).

The third-tier intro made cigarettes affordable in the formal market; latest CPI reading showed that cigarette prices in March 2018 were 20 percent lower compared to March 2017. Public health advocates had warned last year of the third-tier resulting in cheaper cigarettes flooding the market. Government and the tobacco majors both had reasons to believe that the fiscal measure would curtail illicit cigarettes. But some non-profits still have suspicions. (Read “Illicit cigarettes: a smokescreen?” published April 4, 2018).

Secondly, the FED increase announced on the three tiers will barely impact the cigarette prices per 20-cigarette pack. The FY19 finance bill has proposed per pack FED to increase by Rs4.48 for tier-one (which retails above Rs90 a pack), by Rs2 for tier-two (which retails between Rs58.5 and Rs90 a pack), and by Rs0.96 for tier-three (which sells below Rs58.5 a pack).

Those FED increments are just 6 percent over the level fixed in FY18 for each of the three tiers. That price hike – which will be barely noticeable, especially by consumers in the lowest tier, where bulk of cigarettes sales takes place – seems more in line with inflationary expectations than concerns for public health in the country.

Meanwhile, cigarette production is in full swing; the duopoly of Pakistan Tobacco Company Limited (PSX: PAKT) and Phillip Morris Pakistan Limited (PSX: PMPK) has made a resounding comeback in FY18 thus far. (For more on big tobacco’s returning fortunes, read “Cigarettes: on a roll,” published March 4, 2018). Cigarette production is expected to reach 60 billion sticks in FY18, a level not seen in past few years.

Those cigarettes are burning well as tobacco majors last week announced strong financial results for the quarter ended March 31, 2018. The 1QCY18 net turnover grew year-on-year for PAKT by 83 percent and PMPK by 118 percent, with massive boosts to their respective bottom lines. Meanwhile, government revenues aren’t picking up with the same pace. In 1QCY18, for instance, PAKT’s gross turnover grew by 45 percent, but collection of excise duties grew by only 19 percent year-on-year.

Through the new budget, the federal government has yet again chosen tobacco billions over public health. In line with recommendations of various non-profits, it would be prudent to scale back the FED regime to two tiers. Moreover, there is no way around countering illicit smokes through rigorous enforcement actions in key hotspots where non-duty-paid cigarette production takes place. As the budget debate starts today, the opposition will do well to take up this issue in the interest of public health.

Copyright Business Recorder, 2018


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