Examining Tobacco Industry Influence on Policy and Public Health: A Case Study from Nepal

In an era heavily influenced by information, maintaining transparency is crucial, particularly in shaping policies that have profound implications for public health and the overall well-being of the nation. This discussion revolves around a prominent tobacco industry player with over 90 percent market share in Nepal. Their annual report highlights significant claims that warrant thorough examination. This blog aims to explore the company's assertions, the obstacles faced by well-intentioned policies, and the potential consequences for the formulation and execution of national tobacco policies.

Concern on Industry Impact and Profit

As per the annual audit report, the company in question made a net profit, after deducting all the taxes and benefits, of Rs 9.4 billion in 2021 and Rs 10.4 billion in 2022. Though the company also produces match sticks, incense sticks (Agarbatti), and confectionery, the vast majority of its revenue, almost 99%, comes from the sale of cigarettes.

The tobacco industry often presents huge concerns about raising taxes and the negative impact that could have on profit and employment generation. However, this has not been the case. Despite years of marginal taxation rises, Nepal still has one of the lowest cigarette excise tax rates in the region, and globally, at just 39%, far below the WHO's recommended rate of 75%. 

In fact, the concerned tobacco company's post-tax profits from cigarette sales have seen consistent growth. In the year 2021, when the Government raised excise taxes on tobacco products by 25%, the highest increase in two decades, the company did not see any reduction in profits; instead, they were boosted by 11% (figure 1). They have continued to maintain an A1+ credit rating from CARE Ratings Nepal Limited during each year of the tax increase. There is also no current evidence of there being any significant impact on jobs from the tax rises.

Illicit Trade and Its Hidden Facets

The annual report of the company in question raises the alarm about the illicit trade of cigarettes, citing that it causes staggering revenue losses. They raise the argument against further raising taxes, claiming that increases in tobacco taxes could lead to an increase in illicit trade.

“Excessive taxation on cigarettes over the years has created an extremely lucrative arbitrage opportunity for trade in illicit cigarettes. This has provided a fillip to illicit cigarette trade resulting in a proliferation of counterfeit and smuggled products in the country.”

However, this argument is not supported by the evidence. NDRI’s study on Illicit trade¹ finds a very low level of illicit cigarettes in the market – less than 1% (0.33) of sampled packets. This study took place at the end of 2021, 6 months after the government implemented a 25 % increase in tobacco excise tax. The illegal packets that were identified were often more expensive than the average price of cigarettes in Nepal. These findings suggest that the risk of increases in excise tax or price leading to an uptick in illicit trade is extremely low.

Experience from the last two years proves that raising tobacco taxes is an effective way to raise government revenues.  Tax rises in the 2021/22 and 2022/23 budgets have led to an NPR 11.1 billion boost to revenue collections.  Alongside this, there has been no evidence of negative impacts on consumers or industry.

Pictorial Health Warnings and Industry Resistance:

The tobacco company concerned openly critiques the implementation of stringent health warnings on tobacco products. They claim "international experience that indicates extreme regulations do not reduce demand for tobacco, but merely shift it from legal to illegal tobacco products of suspect quality," is offered without any substantiating references, running the risk of misleading both policymakers and the public.

Furthermore, their assertion that a "further increase in the size of graphical health warnings will provide an added impetus to the growth of illicit trade and counterfeit products" reflects a contentious perspective. This unsubstantiated claim undermines the global success of robust tobacco regulations in curbing consumption, diverting attention from immediate health priorities to hypothetical concerns of illicit trade. This, in turn, could sway policy decisions away from evidence-based approaches that prioritize public health.

Taxpayer Awards and Ethical Dilemmas

In the years 2022 and 2023, the tobacco company this blog is focused on, was honored by the Inland Revenue Department for being the highest taxpayer. They proudly wear the badge of being the highest taxpayer and are acknowledged by the government. The recognition of a tobacco company as a significant taxpayer every year, might be intended to showcase economic contribution, but it is essential to consider the broader implications. Balancing fiscal considerations with public health imperatives is a delicate task that requires careful assessment of the long-term consequences. NDRI estimated that in the financial year 2021/22, the direct and indirect economic costs linked to tobacco use in Nepal were NPR 39.8 billion. (Figure 2) This was equal to around 1 percent of total GDP. In the same year, revenues from tobacco taxation totaled NPR 25.9 billion, meaning that they only covered 65 percent of the cost to the economy tobacco use made.² Policymakers and the public must critically evaluate the potential impact of such awards on the nation's health policies and their alignment with the overarching goal of safeguarding public health and well-being.

In the earlier referenced annual report, The Simara Manufacturing Unit was felicitated with the “Best Factory” award in the Madhesh Province by the Department of Labor & Occupational Health for due compliance with Occupational Health & Safety related regulations. Recognizing the tobacco company for adhering to OHS regulations raises ethical questions. Tobacco products themselves are responsible for causing a substantial burden of disease and death globally. Awarding accolades to an industry that profits from products with known severe health risks can be seen as ethically problematic and contradictory. It can create a misleading narrative that focuses solely on workplace safety while sidestepping the more significant health concerns linked to tobacco consumption.

CSR and National Policy Conflicts

According to the Tobacco Product Control and Regulatory Directive, 2014 “Manufacturer and related parties are prohibited to provide any financial, technical, material, and structural assistance to educational seminary, theatre, religious discourse, preaching or health-related organizations operated by government, no- government or private sectors”. 

However, the company in question is actively engaged in various activities and promoting companies under the guise of CSR. It supports various health and education sectors and even they provide support to government hospitals- Bir Hospital. They provide support to public schools and collaborate with NGO-Teach for Nepal which directly conflict with national policy. While this support represents a tiny fraction of its annual profit, it provided a large reputation benefit for the company in the country. CSR achieves more for this tobacco company than just image or reputation management: it also helps the company secure access to policymakers and therefore increases its chance of influencing the policy and political agenda

Conclusion

Our analysis of the annual report of a leading tobacco company highlights the need for vigilance. While the tobacco industry often raises concerns about taxes, illicit trade, and regulations, the data tells a different story. It's crucial to remember that public health is priceless, and it cannot be compared to profit margins. Taxation can be a potent tool for boosting government revenue without endangering employment or increasing illicit trade. Policymakers must prioritize evidence-driven approaches, relying on robust research and analysis over industry claims with no supporting data. Moving forward, it is imperative for policymakers to maintain optimal taxation, uphold health regulations, and carefully scrutinize CSR activities. Finding the right balance between fiscal interests and the well-being of citizens is paramount. In a constrained world, informed decisions must guide the path, prioritizing public health and safeguarding economic prosperity.