The country has the potential to increase its revenue from taxes on cigarettes
akistan is at the forefront of nations grappling with a high rate of tobacco consumption. Inconsistent policies and the influence of tobacco industry have resulted in severe harm to the public health and the national economy.
Tobacco use not only jeopardises health but also contributes to poverty by diverting essential household spending away from necessities like food and shelter.
The World Health Organisation reports that approximately 80 percent of the 1.3 billion tobacco users worldwide live in low and middle-income countries, where the burden of tobacco-related illnesses and deaths is most prominent.
A study by the Pakistan Institute of Development Economics underscores the gravity of the situation, revealing that the total costs attributable to smoking-related diseases and deaths in 2019 was Rs 615.07 billion ($3.85 billion) or 1.6 percent of the GDP.
The World Health Organisation advocates for high taxes. It says a 10 percent raise in tobacco prices could reduce consumption by about 4 percent in high-income countries and approximately 5 percent in low- and middle-income countries.
Article 6 of the WHO Framework Convention on Tobacco Control underscores the effectiveness of tax measures in reducing tobacco consumption across diverse population segments.
However, a formidable tobacco lobby, wielding considerable influence, has for decades resisted moves aimed at raising taxes on cigarettes.
Pakistan has seen years of inaction in defiance of advocacy by public health officials, experts and global organisations such as the WHO and the World Bank.
In 2017, federal excise duty on cigarettes was cut by up to 50 percent and a three-tier excise duty framework was introduced.
The purported aim of the policy was to increase government revenue. However, the plan backfired prompting the Senate to form a special committee to investigate the reasons after the country witnessed a decline in tax collection.
In his report, the auditor general of Pakistan challenged the Federal Board of Revenue’s stance on the benefits of a third tier of FED on cigarettes. Despite an upward trend in sales turnover for major tobacco companies, FED collection during 2017-18 was 13 percent less than the previous year.
In the fiscal year 2022-23, Pakistan underwent a significant policy shift. The government raised the FED on cigarettes, marking a departure from the decisions taken in the past. The fiscal year witnessed three upward revisions in FED rates on cigarettes, ending a three-year period of stagnation.
In fiscal year 2022-23, Pakistan underwent a significant policy shift. The government raised the excise duty on cigarettes, marking a departure from the decisions taken in the past.
The decision not only contributed to higher government revenue but also played a role in reducing cigarette consumption. In this regard, findings of a recent study regarding the impact of a high FED are noteworthy.
The study reveals a compelling perspective, with over 63 percent of the respondents admitting that a raise in prices of tobacco products decreases the consumption.
In addition, the decision yielded a notable increase in revenue. The FBR Yearbook for 2022-23 revealed that cigarettes contributed 40 percent to the overall FED collection.
The country has the potential to raise its revenue from taxes on cigarettes.
The World Bank’s latest report Pakistan Development Update says that Pakistan collected 0.5 percent of GDP in federal excise duty revenue in FY21.
A substantial revenue gain of 0.4 percent of GDP (Rs 505.26 billion) could be achieved if the current rate on premium cigarettes (Rs 16.50 per cigarette) was also applied to standard cigarettes, the report said.
Widespread prevalence of tobacco use – around 20 percent of the population – also poses a challenge for the government in delivering sufficient health facilities to the people.
Malik Imran Ahmed, country director, Campaign for Tobacco Free Kids, says that aligning taxation with the recommendations of the World Bank would help in safeguarding the health and well-being of Pakistan’s children. “The imposition of a higher excise duty on cigarettes not only discourages smoking but also generates revenue for essential public services,” he says.
A recent statement by Information Minister Murtaza Solangi, highlighting the escalating health costs linked to smoking and advocating for tax increases, is a promising sign. “Our commitment to addressing the multifaceted challenge of tobacco consumption is crucial for the well-being of our citizens. As a minister and a concerned human being, I pledge to work tirelessly for this cause,” Solangi said.
The writer is a freelance journalist based in Islamabad