Pakistan: Taxed-to-hilt smokers to ‘cough out’ more for cigs 

Pakistani smokers singled out to dig extra deep into their pockets to ‘cough out’ (pun intended) unaffordable cigarette prices in recently announced Budget 2010-11 are seriously thinking to quit their socially nefarious personal indulgence altogether. Those whose could still afford to continue to keep up with the nefarious indulgence would have to absorb one rupee for every filtered cigarette, or an extra Rs 10 and Rs 20 for a pack of ten or twenty cigarettes respectively, which in most cases would be equal or more than the price it was retailing for before the announcement of the Budget.

The Federal Budget 2010-11 announced by the federal finance minister Dr. Abdul Hafeez Shaikh seems to exclusively target cigarette, and therefore smokers, as the revenue spinner for a budget which is projected to have a fiscal deficit of Rs.685 billion or around 4 per cent of the GDP. The decision to slap Rs 1 CED on every single filter cigarette on Pakistani smokers was easy because smokers are seen an easy target all across the world for taxation not withholding the fact that even the government of developed economies just don’t have the courage to go to such length as to levy a dollar, or even half a dollar tax, on every filter cigarette.

However, the treatment meted out to Pakistani smokers has more to do with the projected Rs 685 billion fiscal deficit in 2010-11 than the claims made by Dr Shaikh that it will “discourage illicit production of low quality and harmful cigarettes. It will generate additional revenue to cope with the health system costs of effects of smoking”.

Perhaps no where else the world including the developed economies the smokers are targeted so easily, and so hard, in the name of governmental ‘benevolence and care’. And particularly in a country where successive governments, sitting included, accord least priority to health and education. This is evident from the fact that of the total budget 2010-11 outlay of Rs 3,259 billion a negligible Rs 16.84 billion and Rs 5.20 billion is proposed for health and education respectively. The health and education sectors, thus, are allocated less than 0.7 per cent share of the total outlay of Budget 2010-11.

However, unlike all developed and many developing countries Pakistan chooses to spend only a negligible portion of tobacco taxes on healthcare, research, education, and anti-smoking activities. Such developing countries in the neighborhoodas Nepal and Peru spend a share of cigarette taxes to support cancer research and treatment. Latvia allocates a substantial portion of revenue that it earns from the tobacco tax on healthcare while Iran earmarks a portion of tobacco tax revenue on healthcare and education.

So how much tax would the government be able to generate from the heavily-taxed smokers in 2010-11? This is a hard question to answer because the imposition of Rs 1 per filter cigarette is feared to force many a smokers to stop smoking altogether by making cigarettes a highly unaffordable indulgence. This could be better understood from the fact that the profiteers have instantaneously increased the price of ten and twenty stick pack of the premium and most popular brand Gold Leaf from Rs 33 to Rs 40 and beyond and from Rs 63 to Rs 80 and beyond despite the fact that fiscal year starts from July 1 in Pakistan and that the said tax would be applicable on all filter cigarettes produced on and after July 1.

However, a calculated guess could be made about as to how much tax would be collected by slapping excise duty on every filter cigarette. According to official statistics over 75.6 billion cigarettes were produced in Pakistan during fiscal year 2008-2009. Though official statistics provide no information what number or percentage of this total cigarette production is filter, nevertheless it is easy to see that taxing the smokers would help government generate tens of billions in extra revenue from die-hard smokers who refused to quit despite the high per-filter-stick tax.

Cigarette manufacturers are already the top tax contributor in Pakistan. In 2009, Pakistan Tobacco Company, one of the top tobacco manufacturer, importer and distributor in the country, sold 41.2 billion sticks and contributed a record Rs 38 billion revenue to the government which was 18.8 per cent higher over 2008. Another top manufacturer, Lakson Tobacco Company, contributed Rs 5.095 billion to the national exchequer in the form of excise duty, sales tax and other government levies during the first quarter this year, which was Rs 671 million more than the comparative period last year.

Cigarette manufacturers are already contribute the top revenue generator for the government and would become an even bigger tax generator in the year to come thanks to the imposition of Rs 1 tax on every filter cigarette produced in the country.