ISLAMABAD – Pakistan’s economy is considered difficult to tax, with limited options for revenue generation. The International Monetary Fund (IMF) has advised that Pakistan should tax cigarettes and other non-essential items as a way forward.
The IMF’s advice is based on its February report, “Tax Policy Diagnostic and Reform Options,” which highlights Pakistan’s tax system’s underperformance in revenue generation, efficiency, equity, fairness, and sustainability.
The report emphasizes the need for structural reforms to address fundamental issues in the tax regime. As Pakistan prepares to negotiate a long-term loan program with the global lender, health activists and experts are calling on the government to increase cigarette taxes.
“Taxing tobacco is the way forward. It is a win-win for public health and for the government’s revenue generation,” said Malik Imran Ahmed, Country Head of the Campaign for Tobacco-Free Kids (CTFK).
Ahmed said that implementation of the IMF recommendations and jacking up the prices of cigarettes in Pakistan would push people to quit smoking and save hundreds of lives every year.
He said that despite the substantial taxes imposed on cigarettes, the revenue generated falls short of covering the healthcare costs incurred due to smoking-related illnesses.
Tobacco taxation in Pakistan has always been influenced by major industry players, particularly multinationals, who would convince the government against raising taxes until recently.
However, a change has been witnessed in the past few years, and the cigarette taxes have increased substantially. But Pakistan is still a place where cigarettes are cheaper from the region.
The IMF report also mentioned that Pakistan has undertaken wide-ranging tax policy reforms as part of an IMF-supported economic program. These included increasing excises on petroleum products and tobacco products.
According to details, excises cover a range of items, including fuel, tobacco, cement, and telecommunications services. Excise rates for tobacco and fuel products were substantially increased, particularly in 2023.
“Similar to the DPL, FED rates on tobacco products gradually increased between 2019 and 2022 and then saw a big increase by an average of 146 percent in February 2023. Survey findings suggest that due to this increase, the consumption of cigarettes has declined by 20-25 percent,” the IMF noted.
As the authorities prepare for the IMF mission and the next fiscal year’s budget, the Social Policy Development Centre (SPDC) has proposed 37% increase in Federal Excise Duty (FED) on tobacco products.
“Pakistan can save as many as 265,000 lives, generate an additional revenue of Rs 37.7 billion and push 757,000 people to quit smoking through increasing the FED by 37 percent,” said the survey by SPDC.
