Price difference of cigarettes: smokers lured into buying duty-evaded brands

The huge price difference between legitimate and illicit cigarettes has forced consumers to purchase cheaper duty-evaded brands, resulting in gradual increase in sales of smuggled cigarettes. Industry sources revealed here on Wednesday that in Pakistan, the rate of tax on cigarettes goes as high as 81 percent on some brands. 

Today, the average price of a duty-evaded cigarette packet is nearly 50 percent lower than the average price of a tax paid cigarette packet. This massive price differential between legitimate and illicit cigarettes only serves to push consumers, especially the youth with lesser purchasing power, towards black market of cheap duty-evaded brands. The unintended consequences of such high tax rates: sale of duty-evaded cigarettes has been steadily increasing in Pakistan. 

The lack of government’s commitment to fully implement anti-smuggling laws and enforcement regulations is evident from the fact that the country stands at number three in terms of illicit trade of cigarettes in the South Asian region. The illicit trade of cigarettes is at its peak in the country. More than a billion duty-evaded cigarettes are sold in Pakistan every month. Nearly one out of four cigarettes sold in Pakistan is duty-evaded. This illicit business causes huge losses to the national exchequer. 

According to the industry sources, May 31 is considered as ‘World No Tobacco Day’ all over the world and usually the anti-smoking campaigns are always eager to advocate the increased regulation of tobacco industry but in their eagerness they forget that more regulation of legal businesses may actually help those illegal businesses that could in the end ignore these regulations with impunity. For example, the regulation regarding the pictorial health warnings that were made obligatory by the government in 2010 to be printed on each and every cigarette packet to discourage smokers, is not being implemented properly. The real beneficiary of that regulation has been smuggled cigarette brands. The sale of one particular brand shot up at least 300 per cent in the recent past. Pictorial health warning regulation has thus resulted in an unintended consequence: creating a huge black market for cigarette packets that carry no health warning at all which before 2010 was an insignificant issue”, sources revealed. On the other hand, sources added, regulation did not affect smoking incidence in Pakistan as it remains the same since 2010. This clearly shows that harsher regulations, coupled with inadequate enforcement, tend to defeat the very objective for which these are introduced. Hence, before eagerly pursuing new regulations a pause is required to reflect on the unintended consequences of such measures and to fully examine all relevant evidence. In Pakistan, directly or indirectly employment and livelihoods of more than one million people is linked with cigarette industry. This includes thousands of farmers, distributors and retailers. These economic consequences, therefore, need to be carefully understood and evidence clearly examined before making any key policy decisions which could later prove counter-productive. 

Copyright Business Recorder, 2013

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