Need of the hour — an effective tobacco track and trace system in Pakistan

At a conference organized in Islamabad last week, public health associations called on the government to implement a more transparent tobacco track and trace (T&T) system. At a time when Pakistan is currently experiencing crippling fiscal deficits, its exchequers could benefit by preventing the loss of billions of rupees, by way of tax cuts to the tobacco industry and allowing its interference in regulation policies. Social Policy and Development Centre presented its findings to the conference participants, estimating the revenue losses to be Rs 153 billion between 2016-2019.

Pakistan is a high-burden-tobacco-use country, in which an estimated 100,000 people die of tobacco-related illnesses each year according to Pakistan’s National Health Services. Increasing taxes can play a vital role in reducing consumption. Unfortunately, this also incentivizes Big Tobacco to evade taxes by safeguarding black market sales of tobacco. Comprehensive traceability systems have been touted as solutions to this problem, able to help prevent revenue leakage by preventing under-reporting of production and boosting sales taxes while controlling illicit trade. However, for such systems to be effective, as underscored by the World Health Organization’s Framework Convention on Tobacco Protocol (WHO FCTC), nominated bodies in charge of the system should be completely independent of any tobacco industry influence.

Given the history of the tobacco lobby strong-arming Pakistan’s anti-tobacco legislations, the Federal Board of Revenue’s (FBR) decision to award the contract for the traceability system to the National Radio and Telecommunication Corporation (NRTC) has come under scrutiny in Pakistan and abroad. After all, the NRTC has no demonstratable experience, in providing electronic monitoring services of tobacco products.

Worse, to provide these services, the NRTC partnered with Inexto — a company run by former employees of tobacco giant Philip Morris International (PMI). In blatant violation of FCTC provisions, Inexto has been peddling a T&T system created by the tobacco industry itself and has gone through extraordinary lengths to portray the system, originally called Codentify, as a trustworthy monitoring technology. It is thus no surprise that several bidders challenged FBR’s decision in the courts. The Islamabad High Court asking the FBR to put its implementation on hold and for a report on its decision. Whether it was due to the IMF’s pressure to fast-track the process or the entrenched influence of the tobacco giants in the government, or both, FBR’s tender is dubious, to say the least.

A problematic tender process

Indeed, the entire tender process has been mired with inconsistencies. To begin with, to please the tobacco industry, Pakistan’s Federal Board of Revenue (FBR) deliberately delayed the launch of the system for more than 10 months. It is only after coming under pressure by the IMF, pending the release of a 6-billion-dollar loan, that the FBR finally completed the bidding process in September 2019. For example, the FBR changed the evaluation process of the bids after a lobbying meeting with the tobacco industry held one week before the tender closed. The initial evaluation process which was based on an 80-point scheme allocated 70 points to the technical qualifications of each bid. By replacing this component to a simple yes/no mechanism, the FBR made pricing the overriding factor, thus, downplaying the importance of technical capabilities.

Moreover, the NRTC was given undue advantages throughout the tender period. In spite of being initially disqualified for quoting prices in an incorrect format, it was later allowed to change its quote. It had mistakenly written Rs. 0.731 per 1000 stamps instead of per stamp, a drastically low price. However, after taking up the issue with the Grievance Redressal Committee in October 2019, NRTC requoted its price at Rs 731 per 1000 stamps. In awarding the license to NRTC, the FBR has gone against procurement laws and licensing rules. Allowing the bidder to change its prices based on a mere acceptance of a bona fide clerical error gave it an undue advantage over others.

Perhaps worst of all, NRTC chose a front company for Big Tobacco to deliver these services, effectively installing a Trojan Horse in the supply chain. Its partner company Inexto has been explicitly signalled out as unfit for tobacco T&T systems by the WHO’s FCTC. Codentify does not use an open-source system and has some features that only the tobacco industry is aware of, allowing them to serve their needs.

While NRTC claims that Inexto is completely independent of the tobacco industry as tobacco companies do not directly own its shares, this question of ownership is a mere façade. Reports suggest that Inexto continues to have a financial relationship with the Transnational Tobacco Companies—and indeed, still receives a large part of its revenue through contracts with the tobacco industry.

Resisting industry pressure for public good

Pakistan’s health sector succumbing to the sway of the Big Tobacco lobby is not a new phenomenon. Time and again, lobbying ministers have fought against anti-tobacco reforms in the parliament with several local politicians occupying tobacco board positions. These inroads by the industry have led to the market share of illicit whites and duty-not-paid cigarettes increasing to a staggering 40% in 2017. Thus, NRTC’s control of Pakistan’s T&T system will allow Big Tobacco to manipulate the system to protect its interests. Not only is NRTC’s industry connection in direct violation of the FCTC Protocol’s specification of industry independence, it will render the efforts to combat illicit trade and increase tax revenues from tobacco sales futile.

Imran Khan’s government came to power in 2018 on a campaign promising to improve public health outcomes and reducing the fiscal deficit of the country. An effective track and trace system can help to achieve both these goals, killing two birds with the same stone. However, as several health associations and anti-tobacco activists have claimed in the meeting held last week, the implementation of the track and trace system will need to be made transparent to prevent Big Tobacco’s self-policing in the supply chain. The government must demonstrate its commitment to this grave public health issue by not allowing itself to become a pawn in the hands of the industry.