Bold tax move slashes cigarette consumption by 20b sticks: research

December 10, 2023

Islamabad : Pakistan’s decisive action to increase the Federal Excise Duty (FED) by 146 per cent as a measure to curb widespread cigarette consumption has proven effective, resulting in a notable reduction of 20 billion cigarette sticks.

The figures were reported by Capital Calling, a network of academic researchers and professionals. The decision of Pakistan to increase FED significantly was taken in line with the recommendations of World Health Organization (WHO), said a press release issued on Friday.

This representational image shows smoke emanating from a cigarette. — Unsplash/File

The outgoing fiscal year 2022-23 marked the departure from the previously controversial approach ending three-year period of stagnation from 2017-2020.From 2020 to 2023, there were minor upward revisions due to pressure from the industry which took the position that increasing cigarette taxes resulted in lower government revenues.

This myth now remains busted as the significant increases in FED rates in February 2023 has resulted in historically high windfall revenues for the government. The WHO Framework Convention on Tobacco Control (FCTC) identifies Taxation as the most cost-effective way to reduce tobacco use. According to Article 6 of FCTC, the tax measures are an effective and important means of reducing tobacco consumption by various segments of the population, in particular young persons and low-income groups.

To ascertain this, market research was conducted by Capital Calling recently. The survey results reveal that the recent increase in FED on cigarettes is inversely proportional to the consumption of cigarettes which is in line with WHO FCTC. The findings of the study suggested that consumption of cigarettes declined by more than 11 billion sticks with 14 percent quitting smoking following introduction of high FED rates. Similarly, some 10 per cent reduced the number of cigarettes they would consume due to high prices.

The overall impact of consumption is estimated to be around 20 billion sticks per year. In 2022, the total consumption of cigarettes was estimated between 72 to 80 billion sticks. This number included officially declared production, smuggled cigarettes, counterfeit products, and cigarettes for which duties have not been paid.

According to the finding of this new study, the volume now stands at around 62 to 64 billion sticks, which is a direct result of the significant increase in FED rates. The FBR has made such a drastic increase in FED rates for the first time in history and this has yielded significant increases in government revenues whereby the revenues have already increased substantially. The expected revenue for the government from cigarettes is estimated at Rs230-240 billion.