Provisions of Article 6 of FCTC worry tobacco farmers
October 24, 2012: While the tobacco growers around the world are trying to voice their concern unanimously against FCTC’s vague recommendations, the absurd recommendations have also started raising eyebrows of people sitting at highest echelons of power. The main point of contentions is Article 6 that is directly hitting farmers by suggesting unprecedented increase in taxes and WHO recommendation against tier system of tax.
The Article 6 of FCTC says price and tax measures are an effective and important means of reducing tobacco consumption by various segments of the population. “Though it is being proposed to increase tax on tobacco, the increase would be self-defeating, as it would lead to an explosion in illicit trade in tobacco products, resulting in a decline in tax revenues and an increase in youth smoking,” asserted Ahsanullah Khan, President Sarhad Chamber of Commerce
The illicit and counterfeit cigarettes have already outgrown the legal industry in Pakistan that only last year contributed a whopping Rs 58 billion under the head of certain taxes. Sale of smuggled cigarettes in 2011 increased by 65 percent, going from 1,018 million to 1,685 million alone while the overall illicit trade increased by 10 percent, up from 18.7 percent to 20.6 percent of the market revenues.
“The problem with these guidelines is that they have been drafted by bureaucrats who do not have an iota of knowledge about ground realities of member countries,” laments Ahsan Ullah. The FCTC guidelines are mired in contradictions, Khan added. “While it acknowledges determining tobacco taxation policies is a sovereign right of the parties, the document nonetheless advises member states to determine and establish their taxation policies, in accordance with Article 6.2 of the documents. Where is the constitutional authority of member countries to set their own fiscal policies in motion?” he questioned.
The FCTC discussion relies too heavily on the experience of the European Union on tax system and its tobacco tax directive. While the EU has achieved a great deal through this directive, other parties have also achieved considerable success with quite different systems and Pakistan is one of them. Regarding higher tax regime, Khan said, “Subjecting legitimate cigarette manufacturers to a higher tax regime, as proposed in Article 6, will not reduce tobacco consumption in the country as smaller players will unseemly come forward to fill the void but the government will be the biggest loser in terms of legitimate taxes that it earns from legal industry.”
In local perspective, policy makers seem baffled on ambiguous FCTC recommendation that the member countries should abolish the existing FED charged on the basis of threshold and slabs of the FED for different brands of cigarettes. Contrary to this, tax experts are unanimous a target based on excise incidence is meaningless as there is no correlation between excise incidence and excise yield. ‘A target based on excise yield is inappropriate if it does not take into account national circumstances, in particular standards of living,’ averred Khan.
“A minimum excise yield does not remove the incentive for smuggling between different countries as some will raise their tax levels above this minimum,” he added. FCTC also recommends member countries should consider banning Duty Free items but this is not practically possible as Pakistan is moving swiftly to declare India as Most Favoured Nation (MFN) by the year-end, the Commerce Ministry has already issued the Statutory Regulatory Order (SRO) to implement the cabinet decision to switch to the Negative List. “It will be nearly impossible for Pakistan to ban cigarette as duty free item in the presence of SAFTA,” said Khan.