Pakistan has taken significant strides by increasing Federal Excise Duty (FED) by 146 per cent on cigarettes in line with the recommendations of the World Health Organization (WHO) to discourage consumption in general, reports Capital Calling, a network of academic researchers and professionals.
The outgoing fiscal year, i.e. 2022-23, marked the departure from the previously controversial approach, ending three years of stagnation from 2017-2020. From 2020 to 2023, there were minor upward revisions due to pressure from the industry, which took the position that increasing cigarette taxes resulted in lower government revenues. This myth remains busted, as the significant increases in FED rates in February 2023 have resulted in historically high windfall revenues for the government.
WHO Framework Convention on Tobacco Control (FCTC) identifies Taxation as the most cost-effective way to reduce tobacco use. According to Article 6 of FCTC, “tax measures are an effective and vital means of reducing tobacco consumption by various segments of the population, in particular young persons and low-income groups.
To ascertain this, market research was conducted by Capital Calling recently. The survey results reveal that the recent increase in FED on cigarettes is inversely proportional to the consumption of cigarettes, which is in line with WHO FCTC.
The findings of the study suggested that consumption of cigarettes declined by more than 11 billion sticks, with 14% quitting smoking following the introduction of high FED rates. Similarly, some 10 % reduced the number of cigarettes they would consume due to high prices. The overall impact of consumption is estimated to be around 20 billion sticks per year.
In 2022, the total consumption of cigarettes was estimated to be between 72 to 80 billion sticks. This number included officially declared production, smuggled cigarettes, counterfeit products, and cigarettes for which duties were not paid. According to the findings of this new study, the volume now stands at around 62 to 64 billion sticks, which is a direct result of the significant increase in FED rates.
The FBR has drastically increased FED rates for the first time in history, which has yielded significant increases in government revenues, whereby the revenues have already increased substantially. The expected revenue for the government from Cigarettes is estimated at Rs. 230-240 billion.
This figure was Rs. 83 billion in 2017 and Rs. 87 billion in 2018. The introduction of the controversial third tier in FED on cigarettes was directly responsible for an increase in deaths from 160,000 in 2016 to 337,500 deaths in 2020.
With the decrease in consumption, it is expected that the health costs of smoking will decrease, and the number of people dying from smoking will come down substantially.
