In rebuking FBR, Pakistan’s courts take a stand for public health

The system, if implemented effectively, will allow Pakistan’s revenue service to combat the illicit trade in tobacco products and potentially add hundreds of millions of dollars to the state’s budget each year.

It may be a small victory for transparency and accountability in Pakistan, but it is a victory nonetheless. Earlier this month, the High Court in Islamabad invalidated a contract granted by Pakistan’s Federal Board of Revenue (FBR) to the National Radio & Telecommunication Corporation (NRTC), for the implementation of a “track and trace” system for tobacco products. The decision came after multiple other bidders complained of serious irregularities in the tendering procedure; as a result, the FBR will now have to restart bidding.

While this court decision may seem like the outcome of an obscure bureaucratic battle to the untrained eye, it is, in fact, the latest chapter in the country’s struggle to rein in a powerful, and largely unaccountable, tobacco industry that has imposed its will on successive Pakistani governments. It is Pakistan’s obligation to deploy the track and trace system in question, both under the terms of international treaties it has signed and under the International Monetary Fund’s most recent assistance package to the country.

The system, if implemented effectively, will allow Pakistan’s revenue service to combat the illicit trade in tobacco products and potentially add hundreds of millions of dollars to the state’s budget each year. Unsurprisingly, the tobacco industry has fought hard to stymie this reform, and with the controversial FBR contract award to the NRTC, it may well have thought it had succeeded.

An industry run amok

In extensive investigative reporting published earlier this year, the OCCRP illustrated just how deep-rooted the tobacco industry’s influence over Pakistani institutions truly is, as well as the extent to which tobacco companies have profited from a regulatory regime starkly unfit for purpose when it comes to protecting Pakistan’s public (or indeed its fiscal) health. The local subsidiaries of two of the world’s largest tobacco companies, Philip Morris International and British American Tobacco, have consistently flouted their tax and reporting obligations to the government, operating secret production facilities to produce off-the-books tobacco and then claiming themselves victims of a black market their own production lines supply.

By allowing the tobacco industry to effectively operate under the honour system, Pakistan’s revenue service has deprived itself of anywhere between 15-47 billion rupees ($143-$448 million) every year. Even when tobacco products are declared in accordance with the law, the state has failed to stand up to tobacco industry lobbying on pricing. Instead, the government seemingly took industry claims that illicit trade had damaged their market share at face value, granting the tobacco sector a far more favourable tax bracket in 2017. That decision has naturally boosted the industry’s revenues.

While the tobacco industry profits off the state’s failure to police its activities, Pakistan’s critically underfunded health services have found themselves overwhelmed even without the challenge of a global pandemic. The country’s entire federal health budget stood at just 13 billion rupees ($174 million) in 2019, less than even the conservative estimates of the revenues lost from ineffective tobacco taxation. Despite being home to over 210 million people, Pakistan only has 1,279 public hospitals, and the capital of Islamabad has only 2,100 hospital beds for the whole city. Rural Pakistanis are even more neglected, with 686 rural health centres meant to meet the needs of 132 million people.

Given the country’s overstretched health infrastructure, high tobacco taxes represent an invaluable public policy tool for reducing smoking rates and pressure on the health system. Instead, by falling into the tobacco industry’s trap and reworking its tax brackets to the industry’s benefit, Pakistan has – in the World Bank’s view – effectively encouraged smoking. Nearly 20% of Pakistani adults and nearly a third of Pakistani men use tobacco products, resulting in over 100,000 deaths each year from diseases linked to tobacco.

A false start on track and trace

When, in 2019, combined pressure from the World Health Organisation (WHO) and the IMF finally saw Pakistan conduct a track and trace tender after more than a decade of delays, public health advocates may have had reason to hope the country had turned a page in its losing battle against Big Tobacco. Unfortunately, the man responsible for overseeing the tender process – FBR’s then-head Syed Muhammad Shabbar Zaidi – also happened to be a longstanding tobacco industry consultant and ally.

As related by the OCCRP, Zaidi appeared before Pakistan’s Senate to argue on behalf of the tobacco industry mere months before taking up his post at the FBR. After Zaidi came into office, the tobacco industry succeeded in pushing the FBR to change its rules for the bidding process to place less emphasis on technical qualifications. Then, after vendors had submitted their bids, Zaidi’s FBR allowed the NRTC to correct a ‘blatant mistake’ in their pricing for tax stamps that undervalued the company’s proposed services one thousand-fold. In its ruling, the Islamabad High Court found that the FBR should have by all rights thrown out the NRTC bid on that basis alone.

Nor was that the only problem with the NRTC’s proposal. The company, which reportedly has no experience in the highly-specialized tax stamp sector, instead of planned to partner with Inexto, a company intricately linked with the global tobacco industry. According to the WHO itself, Inexto’s “solution” Codentify was developed by the tobacco sector itself and does not comply with Pakistani’s treaty obligations under the Illicit Trade Protocol of the Framework Convention for Tobacco Control (FCTC).

By effectively ignoring the faults in the NRTC’s bid and the clear involvement of the tobacco industry in its proposal, the FBR seemed content to once again let the tobacco companies write their own rules. By scrapping the tender and demanding the revenue service restart the process, the High Court has given Pakistan’s taxman an opportunity to correct its wayward course. It remains to be seen whether the FBR, under new leadership with Nausheeen Javaid Amjad at the helm, can make the most of this second chance.

(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)