Enhanced tobacco taxation in Pakistan is likely to reduce cigarette consumption and even generate more revenue

Pakistan has a chequered history in terms of taxation on cigarettes. The Federal Excise Duty (FED) is the major tax levied on cigarettes in the country and its structure is based on a price-tier system. In 2013, a two-tier structure of FED based on the range of retail prices was introduced. In 2017, FED structure was modified to a three-tier structure, with a new tier for the low-price brands, in which the applicable tax rate was reduced by 48 percent. Consequently, the overall price index of cigarettes declined by 22 percent in 2017-18 (the fall in prices was higher in the case of low-price brands). This led to a massive increase in the domestic production of cigarettes from 34.3 billion sticks in 2016-17 to 59.1 billion sticks in 2017-18. Contrary to the government’s expectation, research by SPDC (2018)1 has revealed that the three-tier structure with the reduced tax rate failed to generate additional tax revenue for the national exchequer. Read more...