A sombre Imran Khan addressed the nation on March 18th, lamenting that Pakistan’s poor economic state means the country cannot respond to the coronavirus crisis with the type of life-saving lockdown countries in Europe have opted for. Beyond the economy, however, there is another reason why Pakistan is singularly ill-equipped to deal with the pandemic: its healthcare system is already strained nearly to the breaking point, over-burdened by scourges such as the country’s rampant tobacco consumption.
Pakistan has struggled for decades to tackle the tobacco epidemic that claims the lives of more than 160,000 citizens each year. A full 17% of all deaths in Pakistan can be traced back to tobacco use, while tobacco-related healthcare expenditures top 143 billion rupees annually. The Federal Board of Revenue’s inability to clamp down on the parallel tobacco trade, which includes both smuggling and manufacturers’ under-reporting of production, has taken the wind out of anti-tobacco initiatives but also deprived Pakistan of tax revenues sorely needed to bolster the country’s healthcare system.
Strong-armed by the tobacco industry
The principal reason why Pakistan’s anti-tobacco efforts have been so ineffective is that the major tobacco manufacturers continue to engage in tobacco fraud in the country. International brands like Philip Morris International (PMI) and British American Tobacco (BAT) have been caught drastically underreporting their production and even using their facilities to roll out black-market cigarettes.
In a 2017 raid, Pakistani authorities found 1.3 million black-market cigarettes with the branding of a Philip Morris subsidiary in a van leaving one of PMI’s former factories—which the tobacco giant was apparently using as an undeclared warehouse. That same year, PMI had reported a decrease in production, claiming competition from illicit manufacturers. This under-reporting has added up to a tax shortfall of as much as 47 billion rupees between 2015 and 2018.
Facing increasing pressure to curb this financial and public health menace, in 2018 Pakistan signed on to the WHO’s Protocol to Eliminate Trade in Illicit Tobacco Products. One of the treaty’s provisions calls on governments to implement a comprehensive track-and-trace system to monitor the flow of cigarettes from factory floor to shop shelf. Such a scheme, if carried out properly, would not only make it difficult for tobacco companies to under-report production, but could significantly reduce cross-border smuggling.
However, as the WHO has repeatedly stated, these systems can only be effective if they are implemented and their suppliers are selected without any industry influence. Giving the tobacco giants sway over the traceability system makes it a virtual certainty that they will exploit the scheme to promote their vested interests, including black-market sales of their products.
Fatally flawed track-and-trace tender
Pakistan’s efforts to implement a traceability system have fallen short of the WHO’s clear guidelines. The FBR finally completed a tender in September 2019, but the entire process was mired with inconsistencies and the spectre of industry interference loomed large.
For years, the tobacco industry managed to foil the FBR’s attempts to institute a track-and-trace scheme. The International Monetary Fund (IMF) finally put an end to these prolonged delays by making a functional track-and-trace system a condition of the $6 billion bailout it granted Pakistan last year.
The tender process the FBR began in July 2019, however, was fraught with problems from the very start. Abandoning any veneer of independence from the industry, the FBR hired ex-employees of British American Tobacco to draft the tender. The head of the tax authority’s inland revenue department justified this dubious personnel choice by arguing that they didn’t have a wide range of applicants. The authorities also admitted that “everyone… whom we hired was either linked to BAT or to the other company, Philip Morris.”
To make matters worse, the FBR radically changed the tender’s evaluation criteria while the bidding process was ongoing – following a meeting between the tobacco lobby and FBR chairman Syed Shabbar Zaidi. An in-depth OCCRP investigation determined that Zaidi was uniquely placed to be sympathetic to the industry’s concerns; in fact, before heading the FBR, Zaidi was a senior partner at consulting firm PwC and represented Pakistan Tobacco.
Artificially low bids and industry connections
Zaidi has brushed off concerns that he might have colluded with the tobacco industry to help them avoid taxes. But the unsatisfactory conclusion of the NRTC’s track-and-trace tender has left lingering questions about his impartiality. The FBR finally awarded the contract to the National Radio and Telecommunications Corporation (NRTC) in a controversial move which has since been challenged in Pakistani courts. Other bidders allege NRTC was given unfair advantages during the tender process, including by being allowed to change its quoted price after all the bids were evaluated. The company had initially quoted an impossibly low rate of Rs.0.731 per 1000 stamp instead of for a single stamp, a serious mistake NRTC has nonetheless explained away as an oversight.
By awarding the contract to NRTC, however, Pakistan might have violated the WHO’s critical recommendation of ensuring track-and-trace schemes are free of industry influence. NRTC’s partner company, Inexto, is essentially a front company for PMI. The traceability system Inexto has pitch to governments worldwide was created by the tobacco giant and has been denounced by the WHO, policymakers, academics and former tobacco industry employees as unfit for purpose.
A traceability system free of industry influence could have reduced Pakistan’s tobacco consumption rates, the highest in South Asia, and the resulting burden on the country’s fragile healthcare system. Instead, the FBR’s selection of NRTC means Big Tobacco has once again received a free pass to install a Trojan horse in the government’s anti-tobacco efforts.
The full consequences of Islamabad’s failures to put effective tobacco control measures in place are only now coming into view. Unchecked tobacco use has contributed to the overall fragility of Pakistan’s healthcare system—ranked a dismal 154th out of 195 countries. Against that backdrop, allocating resources to address the coronavirus pandemic would have been a challenge for the government even in better economic times. With the health crisis now taking root in his country, Imran Khan will need to find a way to undo the damage, and fast.
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