Demand for increase in FED on tobacco products by 30%
Feb 18, 2021
Being a signatory to the World Health Organization’s Framework Convention on Tobacco control (FCTC), Pakistan is ideally required to levy taxes of at least up to 75% of the retail price of cigarette packs. However, the current scenario says the opposite, stated by tobacco control activists in a press brief on Tuesday in Islamabad. The current tax on the two slabs of tobacco products is far lesser than the optimal tax percentage. To comply with the requirements of the FCTC, Pakistan is required to increase the FED on tobacco products by 30%.
Mr. Anis Bilal, Project Lead Human Development Foundation (HDF) stated that since June 2019, there is no change in the excise duty rate on cigarettes but prices of cigarettes have increased. In 2019, the main source of increase in cigarette prices was not the excise duty; it was due to increase in the price net of taxes.
The over shifting of taxes in prices serve a dual purpose. It increases the industry’s profit per pack and industry uses this price increase to avoid any tax increase in the tax rate for the year 2020. The revenue loss to the government due to under reporting in 2017 and 2018 was Rs. 35 billion and 15 billion respectively. Based on the above finding, we would recommend an increase in the excise duty rate for the year 2021-2022.
He also stated that Pakistan, being a low and middle income country, faces the consequences of tobacco epidemic in multiple forms. Of these, the worst form is poverty. On average Pakistani smokers spend 10% of their average monthly income on cigarettes shared by a survey by the name of STOP, 2020 which not only diminishes income for important services such as health and education but also exposes the household to many health risks. Increasing taxes on tobacco has been a recognized policy to reduce tobacco purchase.
Furthermore, tobacco is said to disproportionately affect the lower income groups. In Pakistan, 25.3% of households in the lowest income group smoke cigarettes compared to 16.2% of households in the highest income group. Since lower income groups also have less access to health facilities they suffer more the health harms of tobacco use.
Talking about the current tax scenario in the region, the Tobacconomics Cigarette Tax Scorecard shows that Pakistan has scored 0.88/5 points. It is one of the lowest scoring countries of the 174 countries assessed and indicates that its cigarette tax system needs much improvement. Pakistan’s score is lower than the average score of the EMRO region (1.68) and of lower-middle income countries (1.51). In order to match the tobacco control policies across the region Pakistan must raise the FED on tobacco by 30% in fiscal year 2021-2022.
The tobacco control activists suggested that at least a 30% increase in FED on tobacco can help discourage tobacco use among lower income groups.
This will also help Pakistan in matching the tobacco control policies across the region and scoring better on the tobacconomics cigarette tax scorecard in future. Moreover, it will help in reducing its consumption, hence reducing the overall economic cost of tobacco use in Pakistan.