In February 2023, the government of Pakistan raised the federal excise duty tax on cigarettes, resulting in a remarkable outcome: an 18 percent decrease in the number of smokers over the year. This initiative has played a significant role in saving lives. This success raises a compelling question: What would be the result if similar tax increases are observed in 2024? The potential impact of increasing tobacco taxes can be profound, not only in terms of public health but also in generating fiscal gains which at this point in time are critical.
Consumption of tobacco is a pressing global health issue, with implications reaching far for not only the individual’s well-being but also the nation’s economy. Fortunately, the tobacco taxes have emerged as a strategic move to address the pertaining health issues. The taxation of tobacco is designed in a way to balance the objective of increasing revenue, reducing health costs and curbing tobacco consumption.
The landscape of nicotine products has been evolving over years, hence it is necessary to expand taxation beyond the conventional cigarettes to encompass alternative nicotine products. This would ensure that all forms of tobacco and nicotine consumption are subjected to taxation, therefore mitigating health risks and maximizing the potential for revenue.
According to World Health Organization (WHO), the toll of tobacco consumption on the healthcare system is staggering. 31.6 million adults in Pakistan currently consume tobacco, resulting in 160,000 deaths annually. The associated healthcare costs at least 1.4% of the country’s GDP each year. The government can alleviate the burden from the healthcare system by increasing taxes while also generating revenue.
Studies show that higher taxes lead to reduced consumption, resulting in lower rates of tobacco induced diseases, including cancer, respiratory diseases and cardiovascular problems. Consequently, lower healthcare costs benefit both governments and individuals alike.
The WHO has proposed a 37% increase in the Federal Excise Duty for the upcoming fiscal year, with the estimate that this step could generate an additional Rs60bn in Goods & Services Tax (GST) from cigarettes for the year 2023-2024. The country head of The Campaign for Tobacco Free Kids (CTFK) has urged the government to raise taxes in line with WHO recommendations, i.e. to raise tobacco taxes to 70% of the retail price. Further stating that advancements in tobacco taxation are important in promoting public healthcare, reducing tobacco consumption, and offsetting a significant portion of healthcare costs.
While tobacco taxation may be an effective strategy in reducing tobacco use, it is important to also tax nicotine alternatives as well. Consumer preferences are shifting to e-cigarettes and nicotine pouches hence extending taxation to these products is critical. This approach ensures that all nicotine products are subjected to taxation, therefore maintaining equity and discouraging substitution.
By embracing a comprehensive taxation strategy, not only will the government be saving more lives but also alleviating healthcare burdens and increasing government revenue. Therefore, contributing to a more prosperous future for Pakistan.
