Pakistan: The economic and financial cost of smoking

According to a study conducted by the Pakistan Institute of Development Economics (PIDE),[1], the annual cost of illnesses attributable to smoking is more than five times the tax revenue collected on tobacco products. The report recommends that tobacco taxes be increased to reduce consumption, while increasing revenues to cover the health costs associated with smoking.

According to Global Adult Tobacco Survey As of 2015, nearly 24 million (19.11%) adults currently use tobacco in some form in Pakistan. About 1,200 children aged 6 to 15 years start smoking every day in the country. Tobacco use causes more than 160,000 premature deaths each year in Pakistan[2].

The report draws on data from a nationally representative survey of more than 12,000 households to estimate the economic burden of three major categories of diseases attributable to smoking: cancer, cardiovascular disease and respiratory disease. The objective of the study is to estimate the direct and indirect economic costs of diseases attributable to smoking. Direct costs include hospitalization, outpatient care and medications, while indirect costs include long-term disease management, caregiver support and lost work days.

The economic burden of the three main categories of smoking-related diseases

The total attributable costs of tobacco-related illness and death in Pakistan for 2019 are Rs 615.07 billion (€3.4 billion), and indirect costs (morbidity and mortality) account for 70% of this total cost. Taxes collected on tobacco products, Rs 120 billion in 2019 (€662 million), only account for about 20% of the total cost of tobacco use. The direct cost attributable to tobacco use accounts for 8.3% of the country's total health expenditure and 1.6% of its total GDP.

The largest share (71%) of the total cost induced by smoking comes from cancers, cardiovascular and respiratory diseases attributable to tobacco consumption. The total direct and indirect cost attributable to smoking of these diseases amounts to a total of 437.76 billion rupees (2.6 billion euros), which is 3.65 times higher than the overall tax revenue resulting from the sale of these products. The report also indicates that the costs for women are underestimated due to their low rate in the workforce and the difficulties in assessing their informal contribution to household production. The report also indicates that the costs related to exposure to passive smoking, which is significant in the country, are not included, which again underestimates the total costs related to tobacco. According to a study published in 2018, 43% of the Pakistani population was indeed exposed to tobacco smoke at home[3].

The need to increase tobacco taxes in Pakistan

The report found that despite evidence that higher tobacco taxes reduce tobacco consumption, Pakistan has a very lax tax policy. This may be because Pakistani governments view tobacco cultivation and production as economic levers and are reluctant to increase taxes for fear of revenue loss.[4]. The tobacco industry also uses tobacco farmers in the country to lobby for tax policies. In 2020, tobacco farmers successfully removed a tax, boosting exports. The removal of the tax came after Pakistani tobacco farmers lobbied the Speaker of the National Assembly, who is also the head of the National Assembly’s Select Committee on Agricultural Produce. The government’s reluctance to change tobacco tax policy is partly due to its failure to fully appreciate the share of health and social costs attributable to smoking. This biases the benefit-cost analysis of tax revenues and has implications for health policy. Given the significant economic and health costs of tobacco use to the country, a four- to five-fold increase in the current tax rate is strongly recommended. To achieve this, the researchers first recommend that the Federal Board of Revenue (FBR) increase excise duty to reach the WHO-recommended threshold of 70% of the retail price of a pack of cigarettes, a recommendation echoed in the guidelines for implementing the Article 6 of the Framework Convention Treaty (CCLAT). Pakistan currently has a complex taxation system[5] and excise duties on cigarettes represent only a little more than half of the purchase price, a system that the report recommends simplifying.

Keywords: Pakistan, Economy, Health Cost, Health, Taxes, Taxation ©Generation Without Tobacco

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[1] Durre Nayab, Ph.D., Muhammad Nasir, Junaid Alam Memon, Omer Siddique, The economic cost of tobacco-induced diseases in Pakistan, Pakistan Institute of Development Economics (PIDE), April 2021 [2] Smoking causes almost 160,000 deaths every year in Pakistan, The Nation, March 18, 2021, accessed April 12, 2021 [3] Naz S, Naz S, Nadeem Saqib MA, Rafique I, Bashir F. Exposure of the Adult Pakistani Population to Second-Hand Smoke - An insight from Global Adult Tobacco Survey of Pakistan 2014. J Pak Med Assoc. 2018 May;68(Suppl 2)(5):S13-S17. PMID: 31324907. [4] Tobacco Free Generation, Tobacco in Pakistan: A Problematic Situation, September 16, 2020, accessed April 12, 2021 [5] The Economics of Tobacco and Tobacco Taxation in Pakistan. Shahid Javed Burki, Aisha G. Pasha, Hafiz A. Pasha, Rijo John, Prabhat Jha, Aftab Anwar Baloch, Ghulam Nabi Kamboh, Rajeev Cherukupalli, Frank J. Chaloupka. 2013. National Committee Against Smoking |