Raising tobacco taxes

High taxes are a proven strategy to discourage smoking

Raising tobacco taxes


he tobacco industry in Pakistan has long claimed that raising cigarette taxes fuels a surge in the sale of counterfeit cigarettes, which they say currently stand at 35-40 percent of the market. This narrative is crumbling in the face of recent evidence.

A new World Health Organisation report, titled Study on Incidence of Illicit Trade of Cigarettes in Pakistan: A Case Study for Islamabad Capital Territory, issued on May 16, however says the smuggled cigarettes make 10.7 percent of the market and locally produced illicit cigarettes account for 10.4 percent of the trade.

According to a study based on Pakistan Bureau of Statistics’ data, tax evasion on domestically produced cigarettes amounted to Rs 53.8 billion in 2015-16. 72.7 percent of this tax evasion was attributed to under-reporting of production by registered brands. A survey of the cigarette retail market in Islamabad was conducted under the WHO study to determine the extent of illicit cigarette sales.

The study found that locally produced cigarettes dominate the market in Islamabad, accounting for 89 percent of the consumption; imported cigarettes make up the remaining 11 percent. Cigarettes produced in Azad Jammu and Kashmir make up less than one percent of total consumption.

Economy brands hold a significant share of the Islamabad market, representing almost 90 percent, while premium brands constitute the remaining 10 percent. Capstan by Pall Mall is the most popular brand, commanding a 41 percent market share. Gold Leaf leads among premium brands with a 6 percent market share.

Widespread tobacco use is a significant public health challenge in Pakistan. The World Health Organisation study cited above calls for a multi-pronged approach to curb smoking.

Malik Imran Ahmed, country head of Campaign for Tobacco-Free Kids, says the tobacco industry has been using deceptive tactics. “They often portray themselves as economic contributors,” Ahmed says, “but the human cost of their products far outweighs any financial benefit.”

The WHO study appears to contradict the industry’s narrative that high taxes fuel illicit trade. “The industry’s claim is not supported by evidence,” says Ahmed. Studies conducted across Pakistan, he says, have shown that the illicit market is much smaller than the industry claims. It ranges between 9 percent and 17 percent of the total market.

While controlling illicit trade is crucial, regardless of its volume, Ahmed advocates a two-pronged approach. He says controlling illicit trade will save billions in tax revenue lost to evasion. On the other hand, he says the government should also take stern action against the industry for misrepresenting data on illicit trade, particularly regarding sale of counterfeit cigarettes to persuade the authorities not to raise cigarette taxes further.

The study has also revealed tax evasion within the legal sector. 72.7 percent of tax evasion in 2015-16 stemmed from registered companies underreporting production. This emphasises the critical role of the track-and-trace system put in place in July 2022 to prevent such underreporting and ensure transparency.

“The track-and-trace system is a step towards curbing tax evasion,” says Malik Imran. “It needs to be coupled with stricter enforcement measures to ensure its effectiveness.”

The industry’s claim of a surge in illicit trade rings hollow against the effectiveness of higher taxes in reducing consumption. Some public health experts are advocating for raising tobacco taxes to 70 percent of the retail price. The recommendation is endorsed by the WHO.

“High taxes are a proven strategy to discourage smoking, particularly among youth and low-income individuals,” says Khalil Ahmad Dogar from the Society for the Protection of the Rights of the Child. “This not only protects their health but also reduces the financial burden of tobacco-related illnesses on the healthcare system.” He also emphasises the potential revenue generation aspect of higher taxes. “A 26.6 percent increase in Federal Excise Duty proposed for the next fiscal year could significantly reduce smoking rates while generating much-needed funds for healthcare initiatives,” he says.

The human cost of tobacco use in Pakistan is staggering. According to the National Health Survey, approximately 160,000 people die prematurely each year due to tobacco-related diseases. “The tobacco industry profits off addiction and misery,” says Dogar. “Affordable cigarettes disproportionately impact youth and low-income individuals, leading to preventable deaths and suffering.” Dogar emphasises the need for a comprehensive approach to tackle tobacco use. “Raising taxes is a crucial tool. It needs to be accompanied by public awareness campaigns, graphic health warnings on cigarette packs and support programmes for those trying to quit,” he says.

The fight against tobacco in Pakistan is not just about public health. It is also about protecting the future of the nation. The government has a crucial role to play in dismantling the tobacco industry’s smokescreen of deception. By prioritising public health, implementing stricter regulations, and increasing taxes, Pakistan can create a healthier future for its citizens and ensure a more sustainable healthcare system.

The message from the WHO is clear. The tobacco industry is not a partner in progress. By prioritising public health and evidence-based policies, Pakistan can build a healthier future for its youth.

A win-win solution


recent survey by Centre for Research and Dialogue has linked an 18 percent drop in smoking rates in Pakistan to rising cigarette prices.

The survey found a marked decrease in cigarette consumption, with 15 percent of respondents reporting they had cut back due to higher prices. This translates into an estimated 11 billion fewer cigarettes smoked annually.

While these results are promising, Pakistan still has some of the world’s cheapest cigarettes. This highlights the need for further tax increases to curb smoking.

The government’s decision to raise FED rates by 146 percent for cheaper brands and 154 percent for premium brands in 2023 has been a key factor in the decline. Despite these increases, cigarettes in Pakistan are cheaper than in India, Sri Lanka and Bangladesh. A pack of premium cigarettes costs around $1.50 in Pakistan, compared to over $3.00 in the neighbouring countries.

The World Bank recommends a uniform tax structure for all tobacco products to further reduce consumption and boost government revenue. Their estimates suggest a revenue increase of 0.4 percent of the GDP if the current tax rate on premium cigarettes is applied to economy cigarettes as well

In Australia, a 25 percent cigarette price hike was found to have led to a 15 percent drop in smoking prevalence between 2010 and 2013. The UK saw a 12 percent reduction in smoking rates between 2011 and 2014 after a 20 percent price increase. Studies show that even a small rise in cigarette prices, can lead to a decrease in household spending on tobacco.

Maryam Gul Tahir, the CRD director, says the government should build on these gains and continue raising cigarette prices to maintain the decline in smoking. “Pakistan has a long way to go in tobacco taxation,” she says.

— By Ahmad Khan Badani

The writer is a researcher based in Islamabad

Raising tobacco taxes