PAKISTAN:

REVISITING TOBACCO TAXES DURING CHALLENGING TIMES

POLICY OPTIONS FOR BUDGET 2021-22
Tobacco use in Pakistan is deadly and costly.
 30 million adults (age 15 +) or about 19.1% of adults currently use tobacco. 1
 Tobacco use is the leading cause of deaths due to non-communicable diseases (NCDs),
including cancers, chronic respiratory diseases, and cardiovascular diseases. 2
 In 2017, tobacco use killed an estimated 163,360 people. 3
 The total economic cost of smoking in Pakistan was estimated at PKR 615 billion in 2020.
This includes direct healthcare costs and costs due to lost productivity. 4
 Poor households spend more of their budget on tobacco as compared to rich households in
Pakistan, which leads to reduced spending on basic needs. 5
Tobacco taxes in Pakistan are low and cigarettes are cheap.
Pakistan applies a specific excise tax system to cigarettes with two price tiers: low and premium. 6
The excise tax rate on low and premium brands is 41.5 and 58.9 percent, respectively; resulting in a
large excise tax gap between the two tiers. Due to the large share of low-taxed cigarettes in the total
consumption, the average excise tax share is 43.2 percent of the retail price, much lower than the
WHO recommendation that excise tax be at least 70% of the retail price.
 Cigarette prices in Pakistan are among the lowest in the world (Figure 1).
 More than 400,000 people are estimated to start smoking in 2020-21. 7
 The effective excise tax rate on cigarettes in 2020-21 is still the same as it was in 2016-17 (Figure
2).
 Cigarettes in Pakistan became more affordable in 2020-21 from a combination of no change in
the federal excise tax and increases in nominal income and inflation.
 Pakistan is ranked among the worst-performing countries in the Tobacconomics Cigarette Tax
Scorecard with a score of less than one on a five-point scale. 8
 In 2019, cigarette manufacturers increased the net-of-tax price of lower-tier brands more than
the increase in excise tax, which shows the potential of raising taxes further. 9

Figure 1: Price of the most sold brand of cigarettes in Pakistan and select LMICs in 2018
(International dollars at Purchasing Power Parity)
Sri Lanka;
$22.17
India;
$10.51
Maldives;
$6.78
Nepal;
$6.19
Iran; $3.68
Bangladesh
;Pakistan;
$2.53
$1.60
Afghanista
n; $1.50
$- $5.00 $10.00 $15.00 $20.00 $25.00

Source: World Health Organization. Report on the Global Tobacco Epidemic 2019. Table 9.1. 2019

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 Figure 2: Effective excise tax rate (Rs per stick)

3.00

2.52
2.50

2.00 1.93 1.94 1.94

1.48
1.50
1.14
1.00

0.50

0.00
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

As per the proposed excise rate for 2021-22

Source: Economic Survey of Pakistan, FBR Year Book

Raising taxes in Pakistan will save lives and increase government revenue.
 The most effective way to reduce tobacco use is to raise the price of tobacco products
through excise tax increases.
 Higher prices discourage youth from initiating tobacco use and encourage current users to
quit.

Table 1: Proposed tax system (2021-22)

FED (PKR)
Market Share
Price Tiers Price Tier Excise Tax
(%) Current Proposed
(PKR) Share* (%)
Low 92% 33.0 42.90 <119.2 47.1%
Premium 8% 104.0 135.20 ≥119.2 63.4%
Weighted Average 38.7 50.32 - 47.4%
*WHO recommendation is 70%; see technical endnote.

Raising tobacco excise to 43 PKR on the low-price tier and 135 PKR on the premium tier would result
in:
 350,000 fewer smokers
 5.8% reduction in smoking intensity among adults;
 122,000 lives saved; and
 PKR 18 billion in additional total tax revenue—an increase of at least 13.5%.

The Way Forward

The proposed tobacco tax reform will greatly help the Government of Pakistan achieve its
commitment to reduce tobacco use and its goal to reduce deaths from NCDs as per its pledge to
achieve the Sustainable Development Goals 10 and align its tobacco tax policy with global best
practices. This would not only help curb tobacco use in the country but would also contribute to
generating more revenues that can be used for promoting public health. The proposal is a clear ‘win-
win’ for the Government and the people of Pakistan.

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Beyond FY 2020/21, to fulfill its long-term commitment to using tax and price measures to reduce
tobacco consumption, the Government must continue reforming the tobacco tax system by:
 Implementing large excise tax increases in order to make cigarettes progressively more
expensive and less affordable;
 Incorporating an automatic inflation adjustment mechanism in the tax policy;
 Moving to a uniform federal excise duty for all cigarette brands to simplify the tax system;
and
 Harmonizing excise taxation across all tobacco products.

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1
SPDC estimates based on GATS 2014 and population projection for 2022
2
Jafar TH et al. Non-communicable diseases and injuries in Pakistan: Strategic priorities. The Lancet. 2013 June 29;381: 2281-2290.
3
Institute of Health Metrics and Evaluation. Global Burden of Disease, GBD Compare. University of Washington, 2019.
4
Pakistan Institute of Development Economics, 2020.
5
Salim, Wasim and M. Asif Iqbal, The impact of tobacco use on household consumption in Pakistan. Research Report. Social Policy and Development
Centre. 2020.
6
Government of Pakistan S.R.O. 608(I)/2019. Federal Board of Revenue 2019.
7
SPDC estimates based on GATS 2014 and population projection for 2022.
8
https://tobacconomics.org/research/cigarette-tax-scorecard/
9
Enhanced tobacco taxation in Pakistan is likely to reduce cigarette consumption and even generate more revenue. Policy Brief. Social Policy and
Development Centre. 2019.
10
Particularly SDG 3 (Ensure healthy lives and promote well-being for all at all ages) and Target 3.4 to reduce premature mortality
from non-communicable diseases.