Pakistan’s Bold Tax Move Slashes Cigarette Consumption by 20B Sticks: Research
Islamabad: Pakistan’s decision to increase the Federal Excise Duty (FED) by 146 percent has proven to be a successful measure in curbing widespread cigarette consumption. Recent research conducted by Capital Calling, a network of academic researchers and professionals, indicates a notable reduction of 20 billion cigarette sticks.
The move to increase FED was taken in line with the recommendations of the World Health Organization (WHO) and has yielded positive results. The outgoing fiscal year 2022-23 marked a departure from the previously controversial approach, ending a three-year period of stagnation from 2017 to 2020. From 2020 to 2023, there were minor upward revisions due to industry pressure, with the belief that increasing cigarette taxes would result in lower government revenues.
However, the recent increase in FED rates in February 2023 has shattered this myth, leading to historically high windfall revenues for the government. The WHO Framework Convention on Tobacco Control (FCTC) has long identified taxation as the most cost-effective way to reduce tobacco use. Article 6 of the FCTC highlights the importance of tax measures in reducing tobacco consumption, especially among young people and low-income groups.
To assess the impact of the increased FED rates on cigarette consumption, Capital Calling conducted a market research study. The results revealed an inverse relationship between the recent FED increase and cigarette consumption, aligning with the objectives of the WHO FCTC. The study found that more than 11 billion cigarette sticks were not consumed, with 14 percent of smokers quitting altogether due to the introduction of high FED rates. Furthermore, 10 percent of smokers reduced their cigarette consumption due to the increased prices.
As a result, the overall reduction in cigarette consumption is estimated at 20 billion sticks per year. In 2022, the total estimated consumption of cigarettes ranged from 72 billion to 80 billion sticks, which accounted for officially declared production, smuggled cigarettes, counterfeit products, and those on which duties were not paid.
Following the significant increase in FED rates, the current consumption volume stands at around 62 billion to 64 billion sticks, clearly reflecting the impact of the tax policy. This drastic increase in FED rates by the Federal Board of Revenue (FBR) has already led to substantial revenue growth for the government. The expected revenue from cigarettes is estimated to be between Rs230 billion and Rs240 billion.
The success of Pakistan’s tax move to reduce cigarette consumption has major implications for public health. By adhering to the recommendations of the WHO and implementing effective tax measures, Pakistan has not only decreased cigarette consumption but also improved government revenue. This serves as a model for other countries grappling with high tobacco use rates.
The impact of this bold tax move on public health cannot be overstated. By reducing cigarette consumption, Pakistan is taking a significant step towards mitigating the adverse health effects associated with tobacco use. With more individuals quitting smoking and reducing their consumption due to the high prices, the country is heading in the right direction in its fight against smoking-related illnesses.
In conclusion, Pakistan’s decision to increase the Federal Excise Duty on cigarettes has proven effective in reducing consumption. With billions of cigarette sticks no longer being smoked, the country is witnessing positive changes in public health and increased government revenue. This success serves as a blueprint for other nations aiming to combat tobacco consumption and improve public well-being.
