Cigarette tax
A NETWORK of academics and researchers have recently indicated that Pakistan has one of the lowest rates of taxation on tobacco in the world, a fact that has major implications for revenue and public health. Comparing Pakistan to India, which has the same proportion of smokers as Pakistan, they note that the revenue generated in Pakistan from taxes levied on the tobacco industry is six times lower. Total annual revenue from taxation on cigarettes amounts to less than $3.85bn — the amount spent by the government from the public exchequer on smoking-related diseases and deaths in 2019. It is unfortunate how little attention has been paid to tobacco taxation. Cigarette use is the main factor behind preventable deaths worldwide, and smoking is associated with multiple health problems. By imposing further taxes on tobacco products, Pakistan can discourage smokers and reduce the overall usage of tobacco products, thereby improving public health. Second, by not tightening its tobacco taxation policies, the government is losing out on an enormous revenue stream, proceeds from which can be used to improve public services.
If thought out carefully, cigarette taxation can be an effective tool for policymakers to limit tobacco use, reduce harm and generate revenue for improving the delivery of various public goods. Unfortunately, this government’s approach is confusing. Last year, the government ended up giving tax relief to tobacco companies after it raised taxes but also simultaneously increased the taxable price threshold for higher end cigarette brands. This year, it has managed to complicate matters further by enforcing a disproportionate increase in both the minimum sale price of cigarettes as well as federal excise duty rates. Tobacco companies warn that the measure will boost the already poorly controlled illicit cigarette trade. It would serve the government well to study effective tobacco taxation models and their outcomes in other countries, where both the public health threat and revenue challenge have been addressed with more success.
Published in Dawn, April 17th, 2023
Large deficits
THE World Bank’s Pakistan Federal Public Expenditure Review puts the focus back on our persistently widening fiscal deficits over the last one decade. This has been one of the main reasons behind the nation’s rapidly burgeoning public debt and growing trade gap. The review is the first since the implementation of the 18th Constitutional Amendment and the seventh NFC Award, which the bank says, represented a major shift in the country’s fiscal architecture since 2010. The report highlights the point that the country’s fiscal deficit averaging 6.2pc of GDP during the last one decade has been large and is growing, posing risks to fiscal and debt sustainability. Likewise, the World Bank emphasises that the large recurrent budget shortfalls have led to a rapid accumulation of public debt, which reached 78pc of GDP in the last fiscal, slightly lower than the record high of 81.1pc in 2020. Both the deficit and debt levels have been in breach of the Fiscal Responsibility and Debt Limitation Act, 2005 and the upper limits of 3.5pc and 60pc of GDP for the budget deficit and public debt respectively.
The short, repeated boom-and-bust cycles of the last few years show how adversely persistent large deficits can affect the economy, slow down growth, cause current account crises and foreign currency crunches, increase public debt and crowd out private businesses from debt markets. Thus, it is crucial to reduce the fiscal deficit to regain fiscal and debt sustainability. The review proposes several measures for fiscal consolidation including the rollback of energy and other subsidies to the wealthy, curbing spending on devolved subjects and financing provincial development projects, disinvestment of lossmaking state businesses, and mobilising domestic revenue by broadening the tax net. The measures proposed by the report can result in fiscal savings equal to 4pc of GDP besides freeing up fiscal space for the private sector to play its role in economic growth. Apart from reducing fiscal vulnerabilities, the reduction in the fiscal deficit and public debt within the limits set by the FRDLA will improve the economic climate and provide a more conducive environment for investment and sustained growth. What ails the economy and what will cure it has long been known to our politicians and policymakers. So one wonders how this new report is going to make them implement the reforms they have avoided for decades.
Published in Dawn, April 17th, 2023
Pulwama cover-up
THE Pulwama-Balakot crisis of February 2019 brought Pakistan and India close to war, and as an explosive interview given by a former governor of held Kashmir has revealed, the stand-off was cunningly milked by the BJP government in New Delhi.
The crisis was sparked after a deadly militant attack on an Indian paramilitary facility in Pulwama, located in occupied Kashmir. This incident started to spiral into a bigger situation, as India launched ill-advised air strikes inside Pakistan, hitting what it wrongly said was a ‘militant camp’ in Balakot.
Soon enough, Pakistani and Indian jets faced off against each other and Pakistan downed an Indian aircraft, capturing Indian airman Abhinandan and later returning him to his country after offering him ‘fantastic’ tea.
But as Satya Pal Malik, who was IHK governor during the crisis, recently told veteran Indian journalist Karan Thapar in an interview published by The Wire, the BJP government at the time had tried to hush up certain aspects of the Pulwama episode in order to blame Pakistan — which had denied involvement in the attack — and stir up nationalist fervour to benefit the Hindu nationalist party in the 2019 Indian elections.
Mr Malik says the Pulwama episode was a result of India’s “incompetence”, particularly of the home ministry. He adds that when he discussed the issue with Mr Modi, as well as India’s then security czar Ajit Doval, he was told to keep quiet, which gave him the impression that the prime minister and his acolytes wanted to blame Pakistan for the incident and gain electoral advantages therefrom.
Satya Pal Malik was also critical of Mr Modi’s decision to rescind IHK’s autonomous status, saying the Indian leader was “ill-informed” and “ignorant” about the disputed territory.
As some Indian opposition figures have noted in the aftermath of the Malik interview, when they had raised questions about the Pulwama episode, they had been accused of ‘speaking in Pakistan’s voice’.
Several lessons can be learned from Mr Malik’s revelations. Firstly, incidents of such a sensitive nature should not be used for domestic political gain. The BJP may have sought to use the Pulwama attack to their electoral advantage and succeeded to an extent, but the fact is that Delhi’s reckless actions had set both Pakistan and India on the course to war.
And as former US secretary of state Mike Pompeo has said, both states were on the verge of deploying their nuclear assets following the Pulwama-Balakot events.
Therefore, a Machiavellian ploy to exploit a militant attack could have been the potential trigger for a nuclear exchange. The other lesson is that in case of any serious escalation involving non-state actors, it is best to open the channels of diplomacy and defuse the crisis instead of letting it balloon into a potential conflagration.
Published in Dawn, April 17th, 2023