Pakistan’s Fiscal and Public Health Success with Higher Tobacco Taxes in 2022-23

Pakistan's Federal Excise Duty on cigarettes operates on a two-tiered specific system based on price— low and high. In the 2022-23 fiscal year, the government demonstrated its commitment to reducing cigarette consumption in Pakistan by significantly increasing excise tax rates on cigarettes in both tiers. This led to the excise tax share in retail price—a good marker of effectiveness—reaching 48% and 68% for the low and high tiers, respectively. The printed price of the most sold brand, Capston, rose from PKR 97.50 in July 2022 to PKR 210.76 in July 2023, and annual production dropped by about 28%, marking a significant victory for public health in the country. Less production indicates less consumption suggesting that many smokers quit and many young people did not start because of the higher prices.

The excise tax reforms have not only been effective in curbing cigarette consumption but have also proven to be a boon for the economy. The revenue collections in the current fiscal year, spanning from July 2023 to January 2024, have already reached an impressive PKR 122 billion. With full-year estimates expected to exceed PKR 200 billion, these figures mark a substantial increase compared to previous fiscal years, highlighting the success of the excise tax reforms in generating revenue.

Following the significant positive shift in 2022-23, the excise tax share remained stable in 2023-24 due to no further changes in the tax rates. Even though production continues to decline, any stagnation in tax rates could have adverse implications for both revenue and public health efforts. The government can again raise tobacco tax rates in its 2024-25 budget to continue to reap the health benefits of reduced consumption for its citizens while bringing in additional and much needed revenue.