Pakistan is a high tobacco-burden country where more than 29 million adults currently use tobacco in any form. Estimates based on Pakistan’s Household Integrated Economic Survey (HIES) 2018–19 indicate that tobacco is consumed in more than 45 per cent of the households in the country—the ratio is 49 per cent and 38 per cent in poor and rich households, respectively.
Additionally, tobacco expenditure constitutes a sizable portion of the household budget and occurs at the cost of spending on necessities such as basic food, health, education, and housing. Therefore, policy measures for reducing tobacco use—such as tobacco taxation—are likely to have a significant impact on household welfare.”
These are some of the findings of the study titled ‘Crowding Out Effects of Tobacco Spending in Pakistan’ conducted by the Social Policy and Development Centre (SPDC), Pakistan.
The study highlights that in 2017-18, the government of Pakistan reduced the federal excise duty on cigarettes, which is a major tobacco tax in Pakistan and meant to discourage its consumption. This duty is used to discourage consumption of an item. At that time, particularly the tax rate on low-priced brands was reduced by 48 per cent, which led to a sharp decline in the cigarette prices and they became more affordable.
What followed was that the consumption of cigarettes increased and the revenue fell considerably. This was totally against the logic given by the tobacco industry which claimed the lost revenue could be saved by reducing the tax on their products.
Anyhow, the research by SPDC, using HIES data of 2015-16 and 2018-19, examines whether there have been any changes in cigarette consumption and how tobacco use affected household expenditure patterns.
It was observed that owing to the reduced prices, the overall consumption of cigarettes per household increased by 27 per cent from 326 sticks to 414 sticks monthly. In 2015-16 taxes on tobacco products were higher than those in 2018-19.
Against this backdrop, the anti-tobacco campaigners demand a significant raise in tobacco tax so that cigarettes become less affordable and households cut on their expenditure on tobacco products. They also argue that under the WHO’s Freedom Convention on Tobacco Control (FCTC), the member and signatory countries have to gradually increase the federal excise duty under their international obligation. The anti-tobacco lobby in Pakistan demands a drastic increase on tobacco products to meet international obligations and make products out of the reach of people, especially the youth.
The HIES 2018-19 data incorporated into the study reveals that tobacco-user households allocate significantly lower budget shares to most of the commodity groups except basic food. Much lower spending is seen in education and housing. It was also revealed in the study that among tobacco-users, poor households spend a greater share of their budget on tobacco compared to rich households.
The study further points out that on average, tobacco-user households spend 2.7 per cent of their monthly budget on tobacco products, while the ratio for lower-income (bottom 60 per cent) and higher-income (top 40 per cent) households is 3 per cent and 1.8 per cent, respectively.
The results show that in all commodity groups, except leisure, consumption decisions are significantly affected by tobacco expenditures. The commodity groups that are negatively affected by tobacco spending include food (basic and other), health, education, housing, and household durables. Therefore, a decrease in the amount of tobacco spending leads to an increase in the budget shares of these commodities.
As said earlier, the researchers working on the study find that tobacco expenditure occurs at the expense of spending in other commodity groups. Simulating the effect that a 50 per cent decrease in tobacco expenditure would have, the results show that the share of expenditure on food and housing increase substantially as a result, especially in low-income households. In short, the report finds strong evidence of the crowding out effect in Pakistan, which shows that reducing the demand for tobacco is necessary to improve the economic wellbeing of low-income households.
Therefore, one can say, findings of this study draw attention to the fact that tobacco expenditure is incurred at the cost of basic necessities, such as food and education, in lower-income households. Also, there exists a negative relationship between prices and consumption of cigarettes. Therefore, the economic well-being of the poor population can be enhanced by adopting policies aimed at reducing the demand for tobacco products, particularly among the poor, the study asserts.
The writer is a staff member