ISLAMABAD – The Society for the Protection of the Rights of the Child (SPARC) has recommended a 26% increase in federal excise duty (FED) on cigarettes in Pakistan to bridge the gap between health burden and tax revenue.
Muhammad Sabir, the Principal Economist at the Social Policy and Development Centre (SPDC), shared these recommendations at an event organized to launch a tobacco taxation simulation model published by the SPDC.
Leading healthcare activists attended the event and called for a tobacco tax hike in 2024 to recover healthcare costs and save lives. Sabir explained that Pakistan currently operates with a two-tiered FED structure for cigarettes, categorized by price tiers.
The FED share in retail prices reached 48% and 68% for low and high tiers, respectively, following a substantial increase in 2022-23. However, due to the absence of rate adjustments, the levelling off of the FED share in 2023-24 could adversely affect revenue and public health efforts.
Sabir added that a 26.6% FED increase in 2024 could recoup 19.8% of the costs, narrowing the gap between health burdens and tax revenues. A 26.6% FED hike could potentially lead to 517,000 fewer smokers, a 12.1% increase in tax revenue, and a 19.8% recovery of health costs.
Beyond 2023-24, the government should integrate cost recovery into tobacco tax policies through automatic adjustments, implement a uniform FED rate across all cigarette brands, and prescribe tax increases for the next three years.
Dr. Ziauddin Islam, Former Technical Head of Tobacco Control Cell, Ministry of National Health Services and Regulations and Coordination, stated that recent statistics reveal that in Pakistan, 31.9 million adults aged 15 years and above, approximately 19.7% of the adult population, are currently tobacco users. The use of tobacco leads to over 160,000 deaths annually in Pakistan, amounting to 1.4% of the nation’s GDP each year. It is imperative to revitalize Pakistan’s cigarette taxation system.
He added that the costs associated with smoking-related health issues have surpassed the revenue generated from cigarette taxes. In 2022-23, taxes covered only 16% of these costs, significantly declining from 19.5% in 2019. Initial data for the first quarter of 2023-24 suggests that cigarette revenue may not even reach 19% of smoking-related health costs, emphasizing the urgent need for action before the fiscal year concludes. This delay in recovering health costs demands immediate attention.
Dr Khalil Ahmad Dogar, Program Manager at SPARC, said the suggested tax hike promises a clear ‘win-win’ situation for health and revenue for Pakistan’s government and people. It is crucial for new governments not to be misled by the tobacco industry. Civil society will support the government in debunking any myths the tobacco industry propagates. Concerns about illicit trade have been countered by research showing that tobacco companies manipulate reported production to influence tax policies and evade taxes.
Additionally, the recently implemented track & trace system aims to reduce counterfeiting, combat illicit trade, and ensure accountability.
