Tobacco taxes: public health and revenue

The government is being asked to implement evidence-based tax policy reforms

Tobacco taxes: public health and revenue


akistan has a high prevalence of tobacco use. The government has recently taken some steps to undo certain past mistakes and introduce a new approach in dealing with the public health menace. The goal apparently is to align tax policy with the World Health Organisation guidelines. The journey has begun.

31.6 million people in Pakistan —nearly 20 percent of the adult population — use tobacco products. This tobacco consumption is responsible for approximately 160,000 deaths annually. It also accounts for 1.4 percent of the country’s GDP in healthcare expenses.

Some progress has been made in tobacco taxation during the past few years. However, concerns persist about the influence of powerful industry players, particularly multinational tobacco companies. It has been argued that there is a need for robust mechanisms to check interference by the industry.

There is an opportunity to build on the past gains, documented by research. A recent survey by the Centre for Research and Dialogue has revealed that 18 percent of people reported have quit smoking following a significant increase in cigarette prices.

The International Monetary Fund has recognised this positive trend, noting a 20-25 percent reduction in cigarette consumption following the tax hike.

The survey findings not only highlight a decline in consumption but also reveal a shift in behaviour among smokers that could result in more cuts in consumption.

The consumption can be further cut and hundreds of thousands of lives saved every year, if the government continue with the current policy of raising the Federal Excise Duty on cigarette.

The Social Policy Development Centre, a Karachi-based policy research organisation focusing on public policy analyses and social sector development, has issued a fact sheet, Recovering Healthcare Costs and Saving Lives: An Urgent Call for a Tobacco Tax Increase in the Budget 2024-25. It has proposed a 37 percent increase in FED on tobacco products in the upcoming budget to reinforce the past gains and in pursuit of further advance in enhancing public health outcomes as well as revenue collection.

“Pakistan can save as many as 265,000 lives, generate an additional revenue of Rs 37.7 billion and push 757,000 people to quit smoking by increasing the FED by 37 percent,” the fact sheet reads.

Currently, Pakistan has a two-tier system of FED on cigarettes. The FED on cigarettes was raised in 2022-23.

Revenue collection from July 2023 to January 2024 was Rs 122 billion. The figure is expected to surpass Rs 200 billion by year-end. The revenue contributes to the national budget and helps in healthcare costs associated with tobacco-related illnesses.

A Rs 567 billion loss of potential revenue over seven years has been blamed on the influence of cigarette companies lobbying for favourable tax policy. 

The current FED share in the retail prices is 48 percent and 68 percent, respectively, for low and high tiers.

Researchers, health experts and activists advocate that FED should be raised further in line with international standards to take the tax share of retail prices to 70 percent.

The SPDC’s proposal seeks to take the FED share to 54 percent or Rs 154 and 72.1 percent or Rs 452 for ‘economy’ and ‘premium’ brands, respectively.

Beyond revenue generation, higher taxes have helped in reducing smoking rates and potentially recouping 17.8 percent of the total healthcare costs associated with smoking-related illnesses in Pakistan.

Health experts and activists are demanding that the government continue with the policy and disregard the industry lobbying against it.

According to the Global Tobacco Industry Interference Index 2023, Pakistan ranks 32nd globally due to industry influence weakening tobacco control policies.

Pakistan lost Rs 567 billion in potential revenue over seven years arguably under the influence of cigarette companies lobbying against tax increases.

The public health activists have also raised concerns over the industry’s proposal to introduce 10-stick cigarette packs for export.

Overcoming industry interference and implementing targeted reforms is the challenge the government has to deal with in order to generate more revenue and safeguard public health.

Advocates like Malik Imran Ahmed, country head of Campaign for Tobacco Free Kids, emphasise the importance of aligning policies with the WHO recommendations to save lives.

The industry has always been highlighting the illicit trade in cigarettes and blaming it on high taxes. They argue that high tax spur illicit trade. It has been alleged that they have been exaggerating the illicit trade figures. A number of independent research studies have found that there is no empirical support for the industry claims. Instead, the claims have resulted in more people asking for a robust track and trace system to combat counterfeiting and illicit trade.

The activists are asking the government to prioritise public health in its budgetary agenda and implement evidence-based tobacco tax reforms.

The writer is an Islamabad-based researcher and journalist with an interest in health and taxation

Tobacco taxes: public health and revenue