SPDC Proposes huge Increase in Tobacco Taxes to Boost Public Health and Revenue in Pakistan in the upcoming budget 2024

 ISLAMABAD: The Social Policy Development Centre (SPDC) has proposed a substantial 37% increase in the Federal Excise Duty (FED) on tobacco products in the upcoming 2024-25 budget.

This recommendation is detailed in SPDC's latest policy paper, "Recovering Healthcare Costs and Saving Lives," which aligns with the guidelines of the World Health Organization (WHO) and the Campaign for Tobacco-Free Kids (CTFK).



The paper highlights that this tax increase could potentially save 265,000 lives, generate an additional Rs 37.7 billion in revenue, and encourage 757,000 people to quit smoking.

As the government prepares its budgetary agenda, this proposal aims to prioritize public health and economic prosperity through targeted tobacco tax reforms.

Pakistan currently operates a two-tiered FED system on cigarettes. Significant strides were made in the 2022-23 fiscal year with a substantial increase in FED. Presently, the FED constitutes 48% and 68% of retail prices for low and high tiers, respectively.

The SPDC report emphasizes that maintaining or increasing these rates is crucial for sustaining both revenue and public health initiatives. Therefore, it advocates for further adjustments in line with international standards, aiming to raise the tax share of retail prices towards 70%.

The proposed changes would increase the FED share to 54% (Rs 154) for economy brands and 72.1% (Rs 452) for premium brands.

This recommendation builds on the success of previous tax adjustments, which have shown tangible reductions in smoking rates and significant financial gains for the government.

From July 2023 to January 2024, revenue collection reached Rs 122 billion, with projections exceeding Rs 200 billion by the end of the year.

Beyond revenue generation, the tax increase has contributed to lowering smoking rates and could potentially recoup 17.8% of healthcare costs associated with smoking-related illnesses in Pakistan.

Addressing concerns about increased illicit trade due to higher FED, the SPDC cited research indicating that such arguments lack empirical support. Evidence suggests tobacco companies manipulate production figures to influence tax policies and evade taxes.

Moreover, the implementation of a track and trace system is expected to reduce counterfeiting, curb illicit trade, and monitor frontloading.

With a high prevalence of smoking in Pakistan, where approximately 31.6 million adults—nearly 20% of the adult population—use tobacco products, this proposal is seen as a critical step towards improving public health and economic outcomes.


Copyright Business Recorder, 2024

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