Revenue and Health Implications of Excise Tax Increase on Cigarettes

Under the Finance Act 2022, passed on June 30, 2022, in the National Assembly of Pakistan, the government revised the Federal Excise Duty (FED) rates on domestically-produced cigarettes. Keeping the two-tier system intact, the FED rates increased by 13.5 percent and 12.1 percent for high-priced and low-priced brands, respectively. The weighted average increase in FED rate is estimated to be 12.5 percent. This is a long-awaited increase since the rates were last revised in July 2019. Though much lower than the widely advocated increase of at least 30 percent, it is a positive step that has broken the stagnation in cigarette tax rates. However, more significant tax increases are needed to offset the damage done by the lax cigarette tax policy of the past three years. Key messages from SPDC’s analysis are presented in this policy brief.