ISLAMABAD – The Society for the Protection of the Rights of the Child (SPARC) has recommended a 26% increase in the Federal Excise Duty (FED) on cigarettes in Pakistan to bridge the gap between the health burden caused by tobacco use and tax revenue.
Muhammad Sabir, Principal Economist at the Social Policy and Development Centre (SPDC), made the recommendation during the launch of a tobacco taxation simulation model published by the SPDC.
At the event, healthcare activists called for a tobacco tax hike in 2024 to recover healthcare costs and save lives. Sabir pointed out that Pakistan currently operates with a two-tiered FED structure for cigarettes, categorized by price tiers. While the FED share in retail prices reached 48% and 68% for low and high levels, respectively, following a substantial increase in 2022-23, the levelling off of the FED share in 2023-24 could adversely affect revenue and public health efforts.
Sabir suggested that a 26.6% FED increase in 2024 could recoup 19.8% of the costs, narrowing the gap between health burdens and tax revenues. A 26.6% FED hike could potentially lead to 517,000 fewer smokers, a 12.1% increase in tax revenue, and a 19.8% recovery of health costs. Beyond 2023-24, the government should integrate cost recovery into tobacco tax policies through automatic adjustments, implement a uniform FED rate across all cigarette brands, and prescribe tax increases for the next three years.
Dr. Ziauddin Islam, Former Technical Head of Tobacco Control Cell, Ministry of National Health Services and Regulations and Coordination, stated that in Pakistan, 31.9 million adults aged 15 years and above, approximately 19.7% of the adult population, are currently tobacco users. The use of tobacco leads to over 160,000 deaths annually in Pakistan, amounting to 1.4% of the nation’s GDP each year. It is imperative to revitalize Pakistan’s cigarette taxation system.
Dr. Islam added that the costs associated with smoking-related health issues have surpassed the revenue generated from cigarette taxes. In 2022-23, taxes covered only 16% of these costs, significantly declining from 19.5% in 2019. Initial data for the first quarter of 2023-24 suggests that cigarette revenue may not even reach 19% of smoking-related health costs, emphasizing the urgent need for action before the fiscal year concludes. This delay in recovering health costs demands immediate attention.
Dr. Khalil Ahmad Dogar, Program Manager at SPARC, said that the proposed tax hike promises a clear ‘win-win’ situation for health and revenue for Pakistan’s government and the people. New governments should not fall into any tricks of the tobacco industry.
Civil society will support the government in debunking any myths the tobacco industry propagates. Research showing that tobacco companies manipulate reported production to influence tax policies and evade taxes has countered concerns about illicit trade. Additionally, the recently implemented track-and-trace system aims to reduce counterfeiting, combat illicit trade, and ensure accountability.
