Tapping into the Tobacco Industrial Profits - Understanding Tobacco Taxation in Pakistan

Tapping into the Tobacco Industrial Profits - Understanding Tobacco Taxation in Pakistan

Publication details

  • Thursday | 14 Jan, 2021
  • Waseem Iftikhar Janjua, Syed Ali Wasif Naqvi
  • Research Reports,Project Publications
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Overview Tobacco taxation is the most effective way to control the spread of tobacco use and reduce demand for it (WHO, 2019). Governments in low-middle income countries face a serious dilemma in earning revenue without annoying the high taxpayers such as the tobacco industry. The government in Pakistan, also burdened by the public pressure, finds it politically challenging to implement new taxes, and is revenue starved. The situation gets further compounded by the fears and sometimes ill-founded claims by the tobacco industry, for example, excessive restrictions on tobacco industry resulting in unemployment, expanding uncontrolled illicit/illegal/smuggled cigarettes market, burden on the national economy, and consequent unfair burden on poor. Contrary to these claims, tobacco taxation has been used around the globe as the most appropriate tool for utilizing the earned revenues to meet issues such as health burden. Tobacco Industry claims to be one of the largest, tax contributors in Pakistan – a claim made by pharmaceutical, cement, fertilizer, and beverages industries as well. Literature shows that raising the tobacco tax is the most cost-effective way for reducing tobacco use. Over 100 studies, including a significant number of studies from the Low and Middle Incomes Countries (LMICs), clearly demonstrate that tobacco taxes are a powerful tool for the reduction in tobacco consumption, simultaneously providing for a steady stream of revenues for the government (Chaloupka, Yurekli, & Fong, 2012). Yet another study involving 490 million male smokers from 13 LMICs revealed that an increase in tax causing a price increase of 50%, would result in 67 million men quitting smoking (Consortium, 2018). The study further revealed that 449 million years of life would be gained across all participants, and the health and financial gains for the poor will be 20% more as compared to the wealthy participants of the study. A study done in Pakistan by Burki et al. (2013) contends that in a suggested uniform specific tax that accounts for 70% of the cigarette price, is instrumental in the reduction of 7.5% consumption, simultaneously adding Rs. 27.2 billion in the national exchequer as tax revenue. Such pricing–tax relation leads to 500,000 users quitting, resultantly saving an estimated 180,000 deaths and preventing another 725,000 new smokers (especially youth) from taking up smoking. In this vein, this brief is aimed at understanding the current tax system in Pakistan and making recommendations for an efficient yet robust tax regime.