Hike in FED on cigarettes suggested for health, revenue collection

Lahore: Anti tobacco activists on Monday warned that the government would lose the revenue and benefit gained through tax reforms if the Federal Excise Duty (FED) rate is not increased in the upcoming budget.

A fact based study released by The Social Policy and Development Centre (SPDC) said, 31.6 million adults in Pakistan use tobacco, resulting in over 160,000 deaths annually. Smoking-related illnesses and deaths cost Pakistan at least 1.4% of its GDP annually.

However, the 2022-23 FED reforms on tobacco have generated good revenue, with collections reaching PKR 122 billion from July 2023 to January 2024.

Study said the reforms have not only increased revenue but also contributed to public health by reducing consumption and potentially recovering 17.8% of the total healthcare costs associated with smoking in Pakistan.

It said however, maintaining the current rate could result in a decrease in health recovery from 17.8% to 15.6% and to achieve similar health cost recovery levels observed in 2023-24, a 37% increase in the FED rate for the upcoming year is suggested.

Anti tobacco activists argue that a tax increase will not promote illicit trade, as research evidence shows that tobacco firms manipulate their reported production to influence tax policy and evade taxes. The recently initiated track and trace system is expected to reduce counterfeiting, curb illicit trade, and keep a check on front-loading.

Study said the proposed tax rates for the Budget 2024-25 aim to increase the FED share in retail price to 70%, generating additional revenue and promoting public health. The tax proposal is a clear 'win-win' in terms of health and revenue for the government and the people of Pakistan.