Budget FY25: SPARC proposes 26pc hike in FED on cigarettes

ISLAMABAD: The Society for the Protection of the Rights of the Child (SPARC) Friday proposed a 26 percent increase in Federal Excise Duty (FED) on cigarettes in budget (2024-25) to bridge the gap between health burden and tax collection.

Muhammad Sabir, Principal Economist at the Social Policy and Development Centre (SPDC), shared the recommendations at an event organized on Thursday to launch a tobacco taxation simulation model published by the SPDC.

The event attended by leading healthcare activists, called for a Tobacco Tax Hike in 2024 to recover healthcare costs and save lives.

Sabir said Pakistan presently operated with a two-tiered FED structure for cigarettes, categorized by price tiers.

Following a substantial increase in 2022-23, the FED share in retail prices reached 48 percent and 68 percent for low and high tiers, respectively, data revealed.

However, the leveling off of the FED share in 2023-24, due to the absence of rate adjustments, could adversely affect revenue and public health efforts.

Sabir added that a proposed 26.6 percent FED increase in 2024 could recoup 19.8 percent of the costs, narrowing the gap between health burdens and tax revenues.

A 26.6 percent FED hike could potentially lead to 517,000 fewer smokers, a 12.1 percent increase in tax revenue, and a 19.8 percent recovery of health costs.

Beyond 2023-24, the government should integrate cost recovery into tobacco tax policies through automatic adjustments, implement a uniform FED rate across all cigarette brands, and prescribe tax increases for the next three years.

Dr Ziauddin Islam, Former Technical Head, Tobacco Control Cell, Ministry of National Health Services and Regulations and Coordination, stated that recent statistics reveal that in Pakistan, 31.9 million adults aged 15 years and above, approximately 19.7 percent of the adult population, are current tobacco users.

The use of tobacco leads to over 160,000 deaths annually in Pakistan, amounting to 1.4 percent of the nation’s GDP each year. It is imperative to revitalize Pakistan’s cigarette taxation system.

He added that the costs associated with smoking-related health issues have surpassed the revenue generated from cigarette taxes. In 2022-23, taxes covered only 16 percent of these costs, a significant decline from 19.5 percent in 2019.

Initial data for the first quarter of 2023-24 suggests that cigarette revenue may not even reach 19 percent of smoking-related health costs, emphasizing the urgent need for action before the fiscal year concludes. This delay in recovering health costs demands immediate attention.

Copyright Business Recorder, 2024