High tobacco tax boosts black market: study

ISLAMABAD: The government's 154 percent increase in federal excise duty (FED) on cigarettes has backfired, driving consumers to cheaper, tax-evaded brands and fueling the growth of the illicit cigarette trade.

The higher taxes have spurred a rise in the purchase of low-priced and illegal cigarettes. This shift not only defeats public health objectives but also creates a parallel market where untaxed and potentially more harmful products are readily available, complicating efforts to regulate tobacco consumption and ensure public safety.

Around 89 percent of survey respondents acknowledged that their consumption did not decrease despite the price hike, with 80 percent opting for cheaper brands. Approximately 71 percent of Pakistanis recently changed their cigarette brand, and a staggering 67 percent shifted to illegal (tax-evaded) cigarette brands due to cheaper prices, whereas only 33 percent continued to consume tax-paid cigarettes.

The study, titled “The Impact of Cigarette Price Increase on Smoking Behavior & Patterns,” was conducted by Umeed-e-Sehar, an organization promoting public health initiatives across Pakistan. It combines quantitative analysis and qualitative insights gathered from a sample of 1,698 smokers out of a total sample size of 2,000 individuals, along with a survey of 60 retailer shops in cities including Mardan, Hyderabad, Multan, Faisalabad, Sahiwal, and Gujranwala.

The study disclosed that the 154 percent increase in FED on cigarettes intended to make them unaffordable has failed to produce results. Higher taxes have increased the tendency to switch from expensive brands to readily available cheaper alternatives, which is the opposite of the government’s intentions.

As per the study, 87 percent of retailers confirmed increased demand for cheaper, non-tax-paid cigarettes due to the price increase, and 83.5 percent reported the absence of tax stamps on cigarette packs, indicating widespread tax evasion.

The FED increase has caused variations in the price distribution of cigarette brands, leading the majority of respondents to opt for cheaper tax-evaded illicit cigarette brands. Approximately 62.4 percent of respondents reported using brands priced between 80 and 120 rupees.

"The findings are a wake-up call for policymakers," said Muzammil Sheikh, Chief Executive Officer of Umeed-e-Sehar. "While well-intentioned, the price hike has inadvertently fueled the growth of the illicit cigarette trade, undermining both public health goals and government revenue."

"Tackling the illicit cigarette trade is crucial for realizing the potential revenue from the tobacco sector and safeguarding public health. Failure to act will only perpetuate this vicious cycle, jeopardizing the well-being of our nation," he added."Efforts to reduce smoking should be coupled with combating illicit trade, as strengthening enforcement can lead to a healthier, tobacco-free society in Pakistan,” Sheikh concluded.