Sharp tax hike reduces tobacco consumption in Pakistan

After several years of stagnation, the 146,% increase in excise duties is said to have led to a drop of about a quarter in cigarette consumption, or 20 billion fewer cigarettes in Pakistan. Public finances have clearly benefited from this tax increase, contrary to what the tobacco industry has been claiming for several years.

Despite having ratified the Framework Convention on Tobacco Control (FCTC), the first international health treaty, in 2004, Pakistan has been lagging behind for years in implementing some of the treaty's public policies to combat tobacco use. Among these measures is the tax policy (Article 6 of the FCTC) that governments must implement to reduce tobacco prevalence. Under pressure from the tobacco industry and in violation of one of the treaty's general obligations to protect public policies from the tobacco lobby, the price of tobacco was remained unchanged between 2017 and 2020, then only saw modest increases between 2020 and 2023. According to tobacco manufacturers, the increase in tobacco taxes would have both encouraged contraband circuits and reduced tax revenues.

Faced with government inaction on smoking, public health actors had been calling for years for a surge from the authorities, both in terms of taxation and compliance with anti-smoking laws, which had been promulgated but poorly enforced. The Pakistani government responded by substantially increasing federal excise duties in February 2023, from 146 % to 154 % depending on the category of cigarettes. A study conducted by the research network Capital Calling estimated the impact of this measure[1].

Cigarette consumption reduced by almost a quarter

The Capital Calling study estimated the total cigarette market in Pakistan in 2022 at between 72 billion and 80 billion units. Conducted in four major cities in the country (Islamabad, Rawalpindi, Lahore and Peshawar), it relied on interviews with tobacco vendors and wholesalers, as well as customs officials. This allowed it to include officially declared cigarette sales, smuggled cigarettes, counterfeit cigarettes and cross-border or in-country purchases. duty free escaping national taxes. A survey of smokers also indicated that 14,133 of them had stopped smoking following the tax increase, which would represent 11 billion fewer cigarettes[2]. 10 % of smokers also reported reducing their cigarette consumption. The total volume of cigarettes sold in 2023 was thus estimated at between 62 and 64 billion, a decrease of around 20 billion units. The authors of the study were therefore able to see that a significant increase in taxes did indeed have an effect on consumption.

Revenues recorded by public finances have meanwhile seen a jump from 148 billion (473.6 million euros) to 200 billion rupees (640 million euros), thus contradicting the predictions of the tobacco industry. The latter also declared that smuggling and counterfeiting represented 40 % of cigarette consumption, while it probably only reaches 18 % and has not experienced the explosion predicted by the cigarette manufacturers.

A new illustration of the effectiveness of significant increases, particularly in an inflationary context

The study thus made it possible to verify that, like the lessons of international literature concerning different countries in the world, a sharp increase in tobacco taxes rapidly reduced cigarette sales and consumption. The strong inflation surge (+31.55 % in February, +36.42 % in April) that the country experienced in 2023 led to massive unemployment and high levels of insecurity which, coupled with the increase in taxes, accentuated the efforts to quit smoking. However, a previous study had indicated that many Pakistani smokers would be willing to quit or reduce their consumption if the price of cigarettes increased by 50 %, which was confirmed. The experience of Pakistan underlines the effectiveness of the fiscal lever in encouraging the poorest to quit smoking.

Keywords: Pakistan, taxation, consumption, CCLAT, article 6

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[1] Higher Tobacco tax helps bring down sale of cigarettes in Pakistan, Capital Calling, accessed December 12, 2023.

[2] Bold tax move slashes cigarette consumption by historic 20b sticks: Research, APP, published December 8, 2023, accessed December 12, 2023.