Taxing Toxins

The Health Ministry’s proposal for a 20% increase in the FED on cigarettes, paralleled by the WHO’s recommendation of a 37% surge to meet international standards, is an excellent step forward for our public health and fiscal policy. Anti-tobacco activists have been relentlessly advocating for this measure for years now, arguing that this is more about safeguarding public health rather than solely focusing on revenue.

Globally speaking, high tax rates have consistently proven to be one of the most effective methods in deterring the consumption of not only cigarettes but any harmful substances like alcohol, that are legally available. Studies indicate that every 10% increase in cigarette prices reduces consumption by about 4%. Considering the fact that Pakistan has over 30 million citizens who regularly consume tobacco, this policy will also serve as a substantial revenue source, a much-needed boon for our economy. The tax hike proposed here could generate an additional Rs. 60 billion in GST from cigarettes for the fiscal year, a significant sum that could be channeled towards other healthcare initiatives. Heavily taxing addictive products, or those that have little to no nutritional value is universally accepted as a positive practice, one that has yielded good outcomes not just in terms of revenue but the trickle-down effect that comes with an improvement in the health of a populace. Tobacco consumption contributes to over 160,000 deaths annually, and smoking-related illnesses cost us at least 1.4% of our GDP – implementing higher taxes will go a long way in mitigating these adverse effects.

That being said, the tobacco industry’s formidable lobby will not go down without a fight. Big tobacco has always argued that tax hikes fuel illicit trade, in an attempt to persuade governments against such measures, even though evidence suggests otherwise. Despite their potential pushback, the government must prioritize public health over vested interests. Revenue collections from tobacco taxes have already shown promising results, with collections exceeding Rs122 billion from July 2023 to January 2024.

Cigarette smuggling and tax evasion is a valid concern, however, and addressing this will be crucial for the effectiveness of this policy. Long-term success will be contingent upon the government’s efforts to curb cross-border smuggling and tax evasion. Embedding cost recovery, and considering automatic adjustments to excise taxes, will be imperative for policymakers to resist pressure from the tobacco industry and build a healthier nation.

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