Escalating Tobacco Tax by 37% proposed by SPDC & WHO to save lives, boost revenue

ISLAMABAD, MAY 05 (DNA): An increase of 37% in Federal Excise Duty (FED) on tobacco products has been proposed by the Social Policy Development Centre (SPDC) to reinforce the gains already achieved and to advance further in enhancing public health outcomes and 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 through increasing the FED by 37 percent,” said the SPDC policy paper name “Recovering Healthcare Costs and Saving Lives” that aligns recommendation of World Health Organization (WHO) and Campaign for Tobbaco Free Kids (CTFK).

The SPDC proposal comes when the government prepares to outline its budgetary agenda, in a bid prioritize public health and economic prosperity through targeted tobacco tax reforms.

Pakistan has two-tiered system of FED on cigarettes. The country made significant strides and increased the FED on cigarettes in 2022-23 with substantial increase in FED. The current FED share in retail prices is 48 percent and 68 percent respectively for low and high tiers.

The SPDC has warned of negative effect on both the revenue and public health efforts if the rates (FED) were not increased and trend was not maintained. Therefore, it advocated to further adjust the FED in line with international standards, to take the tax share of retail prices towards 70 percent.

The 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.

The proposal was backed by the gains of previous tax adjustments, which have demonstrated tangible reductions in smoking rates and significant financial gains for the government.

According to details, revenue collection from July 2023 to January 2024 has reached Rs 122 billion and figure expected to surpass Rs 200 billion by year-end.

Beyond revenue generation, it helped in reducing smoking rates and potentially recouping 17.8% of total healthcare costs associated with smoking-related illnesses in Pakistan.

In response to the argument that the increase in FED would result in increase of illicit trade, the SPDC said that research studies have proved that this argument lacks empirical support, with evidence showing that tobacco companies manipulate production figures to influence tax policies and evade taxes.

In addition, it said that the track and trace system is expected to reduce counterfeiting, curb illicit trade and keep check on frontloading.

Pakistan was among the country where smoking has high prevalence.  The data shows that a staggering 31.6 million adults—equivalent to nearly 20% of the adult population—use tobacco products in Pakistan.

Alarmingly, tobacco consumption is responsible for approximately 160,000 deaths annually, accounting for a considerable 1.4% of the country’s GDP in healthcare expenses each year.