The case for higher taxes

IMF’s advocacy for higher taxes on tobacco products seeks to curb cigarette consumption and bolster government revenue

The case for  higher taxes


lobal lenders, including the International Monetary Fund and the World Bank, have put their weight behind the calls for raising federal excise duty. Aligning taxation policies with international recommendations is easier said than done due to resistance from influential players in the industry, particularly the multinational cigarette companies.

In its report, Pakistan Development Update, the World Bank has suggested that a revenue gain of Rs 505.26 (0.4 percent of the GDP) can result from applying the current rate on premium cigarettes, which is Rs 16.50 per cigarette to standard cigarettes as well.

The IMF has advised Pakistan to overhaul its tax system. It has proposed increasing taxes on non-essential items like cigarettes and applying a uniform tax on cigarettes.

According to the IMF’s technical assistance report titled, Pakistan Tax Policy Diagnostic and Reform Options, released in February, the consumption of cigarettes in Pakistan has witnessed a notable decline of 20-25 percent following substantial hikes in prices or taxes on tobacco products.

A recent study by Imperial College London titled, Tobacco’s Global Environment Footprint has ranked Pakistan among the nine poor countries that produce 90 percent of cigarettes for the world. The study found that tobacco production in underdeveloped countries should be a cause of concern for policymakers as out of the top 10 tobacco-producing countries, nine including Pakistan, are low-income food-deficit countries.

Malik Imran Ahmed, the Campaign for Tobacco-Free Kids country director, says that aligning cigarette taxation with the World Bank’s recommendation is a crucial step toward safeguarding the health and well-being of Pakistan’s children. “Higher excise duty on cigarettes not only deters smoking but also generates much-needed revenue for essential public services,” he says.

He says a major concern is that easy availability of cigarettes has become a cause of additional health burden. Moreover, it has a deeper social implication for the poor households.

The Pakistan Institute for Development Economics has reported that the smoking-attributable costs amount to 1.6 percent of the GDP. Smoking-attributable costs of cancer, cardiovascular and respiratory diseases alone are 1.15 percent of the GDP. “337,500 deaths a year are reported due to smoking,” Malik says.

Tax policies of successive governments have failed to generate enough revenue and to curb smoking.

Some health activists have raised alarm about the tobacco industry’s attempts to seek approval for the manufacturing of 10-stick cigarette packs to export to another country.

Dr Khalil Ahmad Dogar, programme manager at SPARC, says allowing the sale of 10-stick packs in the domestic market could reverse the gains made in reducing tobacco use prevalence. “Such a policy will run counter to the government’s efforts to curb tobacco consumption through taxation and regulation,” he says.

The activists have urged the government to not allow the manufacturing or sale of 10-stick packs and to prevent the exploitation of children and low-income groups by the tobacco industry.

The World Health Organisation says that raising tobacco taxes is crucial for reducing tobacco consumption, especially in low- and middle-income countries. However, the cigarette industry has persistently opposed tax hikes. The industry has consistently opposed tax raised in Pakistan.

Pakistan lost Rs 567 billion rupees in revenue over the past seven years due to a policy shift under the influence of these companies. “Raising FED on cigarettes will reduce consumption and ensure a healthier future for Pakistan’s youth,” says Amjad Qamar, the Centre for Research and Dialogue director. Qamar says that Pakistan is one of the largest tobacco-consuming countries and low prices of cigarettes are a factor in this.

Tax policies of successive governments have failed to generate enough revenue and curb smoking.

IMF’s advocacy for higher taxes on tobacco products seeks to curb cigarette consumption and bolster government revenue.

By implementing uniform excise rates and bridging the gap between local and foreign cigarette manufacturers, Pakistan can streamline its taxation system and mitigate the healthcare costs associated with tobacco-related illnesses. The seventh-largest tobacco-consuming country globally, Pakistan signed the Framework Convention for Tobacco Control in 2004 to address and regulate tobacco use.

Dr Aftab Madni, a professor at the Indus University, says the IMF recommendations for the tax system need to be heeded. He says cigarettes are a non-essential item that cause considerable economic losses as about 9 percent of Pakistanis are smokers. Even second-hand smoke “causes disease and deaths that have to be accounted for,” he says.

“Multinational cigarette companies not only breach tax regulations but also jeopardise public health by making the cigarette more affordable,” says Amjad Qamar.

The writer is a journalist based in Islamabad

The case for higher taxes