The surge in cigarette taxes prompted a historic drop in consumption in Pakistan. Pakistan has recently implemented a remarkable 146% increase in the Federal Excise Duty (FED) on cigarettes, aligning itself with the World Health Organization’s (WHO) recommendations to discourage tobacco consumption.
This move, marking a departure from a previously stagnant approach, has yielded unprecedented results and shattered industry myths about the impact of higher taxes on government revenues.
The fiscal year 2022-23 witnessed a decisive shift in policy, challenging the status quo and confronting the contentious debate surrounding cigarette taxes.
Despite industry concerns that escalating taxes would lead to a decline in government revenues, the substantial FED rate hikes in February 2023 have resulted in historically high windfall revenues for the government.
Emphasizing the effectiveness of taxation as a tool to reduce tobacco use, the WHO Framework Convention on Tobacco Control (FCTC) identifies it as a vital means to curb consumption, particularly among vulnerable demographics such as young individuals and low-income groups.
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The recent move by Pakistan appears to align seamlessly with the principles outlined in Article 6 of the FCTC.
Capital Calling, a network of academic researchers and professionals, conducted a comprehensive market research study to gauge the impact of the recent FED increase on cigarette consumption.
The findings paint a compelling picture of an inverse relationship between the tax hike and smoking habits, echoing the ideals of the WHO FCTC.
According to the study, cigarette consumption has witnessed a significant decline, with over 11 billion fewer cigarette sticks being consumed. Notably, 14% of smokers opted to quit altogether, while an additional 10% chose to reduce their cigarette intake due to the resultant increase in prices.
This collective shift in behavior is estimated to have curtailed overall cigarette consumption by approximately 20 billion sticks annually.
In 2022, the total estimated cigarette consumption ranged from 72 to 80 billion sticks, accounting for officially declared production, smuggled goods, counterfeit products, and those with unpaid duties.
However, the recent study suggests a substantial reduction in this figure, with consumption now estimated between 62 to 64 billion sticks annually, directly attributed to the significant FED rate increase.
The Federal Board of Revenue (FBR) made history by implementing drastic FED rate increases, leading to a considerable boost in government revenues.
Projections indicate that the government is poised to collect between Rs. 230-240 billion from cigarette-related taxes, a stark contrast from the Rs. 83 billion in 2017 and Rs. 87 billion in 2018.
It’s essential to reflect on the ramifications of past policies, such as the controversial introduction of the third tier in FED on cigarettes, which correlated with a troubling surge in smoking-related deaths from 160,000 in 2016 to a staggering 337,500 in 2020.
With the current decrease in cigarette consumption, there is optimism that associated health costs will dwindle, leading to a substantial reduction in smoking-related fatalities.
In conclusion, Pakistan’s bold steps in aligning with global health recommendations and implementing a significant increase in cigarette taxes have not only defied industry apprehensions but have also paved the way for a healthier, more sustainable future.
As the surge in cigarette taxes prompted a historic drop in consumption in Pakistan, the anticipated reduction in smoking-related health costs and mortality rates underscores the potential long-term benefits of such decisive policy measures.
