A 26.6% increase in the Federal excise tax might result in approximately 517,000 fewer individuals smoking.
The Society for the Protection of the Rights of the Child (SPARC) supports a 26% increase in the Federal Excise Tax on cigarettes to address the imbalance between healthcare burden and tax income. This recommendation was presented by Muhammad Sabir, Principal Economist at the Social Policy and Development Centre (SPDC), during the launch event for their tobacco taxation simulation model. The event aimed to encourage a tobacco tax hike in 2024 to recuperate healthcare expenses and save lives.
Currently, Pakistan has a two-tiered Federal Excise Duty (FED) system for cigarettes, divided by price categories. Following a significant increase in 2022-23, the FED share in retail prices reached 48% and 68% for the low and high tiers, respectively.
However, the stabilization of the FED share in 2023-24 due to rate adjustment absence might negatively impact both revenue generation and public health efforts.
Sabir proposed a 26.6% FED increase in 2024, which could recover 19.8% of the health burden and tax revenue gap. This hike could potentially result in 517,000 fewer smokers, a 12.1% rise in tax income, and a 19.8% recovery of health-related costs.
To further enhance tobacco control efforts beyond the 2023-24 fiscal year, the government should incorporate cost recovery into its tax policies by adopting automatic adjustments. Additionally, implementing a uniform Federal Excise Duty (FED) rate across all cigarette brands and proposing tax increases for the next three years can contribute to this goal.
Dr. Ziauddin Islam, the former Technical Head of the Tobacco Control Cell at the Ministry of National Health Services and Regulations and Coordination, highlighted that in Pakistan, 31.9 million adults aged 15 and above, which accounts for 19.7% of the adult population, are current tobacco users.
This widespread tobacco consumption results in approximately 160,000 deaths annually, equivalent to 1.4% of the nation’s GDP. It is crucial to revitalize Pakistan’s cigarette taxation system for the betterment of public health and economic growth.
Dr. Khalil Ahmad Dogar, Program Manager at SPARC, emphasized that the costs associated with smoking-related health issues have surpassed the revenue generated from cigarette taxes. In the 2022-23 fiscal year, taxes covered only 16% of these costs, a significant drop from the 19.5% coverage in 2019.
Preliminary data for the first quarter of 2023-24 suggests that cigarette revenue might not even reach 19% of smoking-related health costs, highlighting the urgent need for action before the fiscal year concludes. This delay in recovering health costs warrants immediate attention.
Dr. Dogar further stated that the proposed tax hike offers a clear ‘win-win’ situation for both public health and government revenue in Pakistan. New governments should avoid falling prey to the tobacco industry’s tactics. The civil society stands ready to support the government in debunking any myths propagated by the tobacco industry.
Concerns about illicit trade have been addressed by research showing that tobacco companies manipulate reported production to influence tax policies and evade taxes. Additionally, the recently implemented track & trace system aims to reduce counterfeiting, combat illicit trade, and ensure accountability.
