n February 14, the government of Pakistan issued an SRO to raise the federal excise duty (FED) on locally manufactured cigarettes. According to the notification, under the first slab, locally produced cigarettes, if their on-pack printed retail price exceeds Rs 9,000 per 1,000 cigarettes, the rate of the FED will be Rs 16,500 per thousand cigarettes.

Under the second slab, if their printed retail price does not exceed Rs 9,000 per thousand cigarettes, the rate of the FED would be Rs 5,050 per thousand cigarettes, the notification adds.

The latest raise in tariff – about 150 percent – is one of the largest in Pakistan’s history. The total tax paid by the cigarette sector in 2021-22 was Rs 150 billion. The collection is expected to be around Rs 185 billion this year.

Tobacco use imposes huge economic and health costs on Pakistan compared to the tax revenue collected from the tobacco industry. A Pakistan Institute of Development Economics (PIDE) study published in 2021 focused on the economic cost, overall, and specifically for three smoking-attributable diseases: cancer, cardiovascular diseases and respiratory diseases. According to the study, in 2019, the estimated cost of smoking was Rs 615.07 billion (or 1.6 percent of the GDP). This included Rs 183.71 billion in direct costs (8.3 percent of total health spending) as well as Rs 133.04 billion in indirect morbidity costs and Rs 298.32 billion in indirect mortality costs.

Most of these costs are incurred by rural populations, men, and those between the ages of 35 and 64. More than 70 percent of the total economic burden comes from cancer, cardiovascular disease and respiratory diseases. On their own, these three diseases result in a total economic cost of Rs 437.76 billion, or 1.15 percent of the GDP.

“The suggests that policy makers should further raise the tobacco taxes and simplify the tiered tax structure to effectively reduce consumption and raise additional revenue,” says Malik Imran, country head of the Campaign for Tobacco-Free Kids (CTFK).

It is important to note that even with the latest tax raise, the cigarette prices in Pakistan remain the lowest in the region. For example, the retail price of Capstan (by Pall Mall) is $0.8 per pack in Pakistan. The same sells for $2.22 in Sri Lanka. Similarly, the price of a Gold Leaf pack is $1.9 in Pakistan and $2.51 in India and $3.90 in Sri Lanka.

“The government should further raise taxes on cigarettes in the coming budget. Pakistan collects less than a quarter of the economical and health cost incurred by tobacco,” says Imran.

According to the Global Adult Tobacco Survey, conducted in 2014, approximately 24.3 million adults in Pakistan use tobacco in some form. Around 163,000 people die each year from tobacco-related diseases. The increase in FED is a significant step towards controlling tobacco use in Pakistan, where tobacco consumption is widespread and a major public health concern.

Various civil society organisations have welcomed the government’s decision to raise taxes on cigarettes. The World Health Organisation (WHO) calls the price hike the most effective way to reduce smoking, especially in the middle and lower income countries. According to the American Lung Association, a 10 percent price increase on cigarettes reduces consumption by 4 percent among adults and 7 percent among the youth.

According to the Global Adult Tobacco Survey, conducted in 2014, approximately 24.3 million adults in Pakistan use tobacco in some form. Around 163,000 people die each year from tobacco-related diseases. The raise in federal excise duty is a significant step towards controlling tobacco use.

The transnational cigarette manufacturers warn that raises in duties and taxes on cigarettes in Pakistan encourage growth of smuggled and illicit cigarette trade. In a statement issued on February 24, two multinational cigarette manufacturers — Philip Morris Pakistan and the Pakistan Tobacco Company said that the raise in taxes will enhance the price of cigarettes by around 250 percent and favour illicit cigarette manufacturers as well as smuggling into Pakistan.

The tobacco industry, according to the WHO, has long been claiming that high taxes drive smuggling. It has sometimes been successful in persuading governments that they should not raise tobacco taxes because this will increase smuggling. “But analyses by the World Bank have shown that high levels of illicit tobacco products are linked more closely to corruption and tolerance of contraband sales,” reads Taxation and Illicit Trade, a report by the WHO.

The report says that the experience from a high tax country (United Kingdom) has shown that it is possible to raise taxes without undesired consequences, if a policy to combat illicit trade has been put in place. “In the 2000–2014 period, cigarette prices more than doubled in the United Kingdom, while smoking prevalence and illicit trade decreased and tobacco excise revenues increased,” it reads.

Tax increases ideally in combination with other improvements to tax structure and implementation, are key to reducing tobacco consumption. According to Tobacco Tax Reform at The Crossroads of Health and Development: A Multisectoral Perspective, a World Bank report, increasing excise rates on tobacco will reduce its affordability. Evidence suggests that this will lower its consumption. “By implementing tobacco tax reforms now, policymakers can choose a fast road to healthier, more prosperous societies,” the report reads.

France and Ireland have the highest excise on tobacco, $7.26 and $9.25, respectively. The EU average is $3.67. The former have seen a significant drop in smoking rates. According to a 2017 Eurobarometer, a series of public opinion surveys conducted regularly on behalf of the European Commission and other EU institutions since 1973, smokers in France represented 36 percent of the population. The same survey in 2020 found an eight percent reduction to 28 percent. In Ireland, 24 percent were smokers in 2017; in 2020, the fraction had dropped to 18 percent.

Cigarette tax raises and subsequent price increases have reduced cigarette pack sales, according to merchants. “I know many of my regular customer who have decreased the number of cigarettes smoked daily after increased cigarette prices a couple of months back. Most of them are young smokers,” says Muhammad Kashan, a cigarette and paan seller in Islamabad.

Anti-tobacco activists say high price of cigarettes makes smoking less appealing to the young people who are often attracted to it because of its low cost. The additional tax revenue, they say, can be used to fund smoking cessation programmes and anti-smoking advertisements.

“We know that raising the tax will keep many young Pakistanis from becoming daily smokers,” says Malik Imran of the CTFK. “Additionally, of course, it will help many currently smoking to finally get over that hump and decide to quit. This gives nightmares to transnational cigarette companies and they use the “illicit trade” excuse to ask the governments to lower taxes on cigarettes. The prices of cigarettes in Pakistan are still the lowest in the region,” he says.

The writer is a journalist based in Islamabad