ISLAMABAD—Anti-tobacco activists have cautioned that the government stands to lose the revenue and benefits gained through tax reforms if the Federal Excise Duty (FED) rate is not increased in the upcoming budget.
A study released by The Social Policy and Development Centre (SPDC) revealed that 31.6 million adults in Pakistan use tobacco, leading to over 160,000 deaths annually. Smoking-related illnesses and deaths cost Pakistan at least 1.4% of its GDP each year.
However, the 2022-23 FED tobacco reforms have been successful in generating good revenue, with collections reaching PKR 122 billion from July 2023 to January 2024. The study also highlighted that the reforms have not only increased revenue but have also contributed to public health by reducing consumption and potentially recovering 17.8% of the total healthcare costs associated with smoking in Pakistan.
Maintaining the current rate could decrease health cost recovery from 17.8% to 15.6%. To achieve similar health cost recovery levels observed in 2023-24, a 37% increase in the FED rate for the upcoming year is suggested.
Anti-tobacco activists argue that a tax increase will not promote illicit trade, as research evidence shows that tobacco firms manipulate their reported production to influence tax policy and evade taxes. The recently initiated track and trace system is expected to reduce counterfeiting, curb illicit trade, and keep a check on front-loading.
The study further stated that the proposed tax rates for the Budget 2024-25 aim to increase the FED share in retail price to 70%, generating additional revenue and promoting public health. The tax proposal is a clear ‘win-win’ situation regarding health and revenue for Pakistan’s government and people.
