50pc increase in cigarette price to lead to reduction in demand: PIDE

ISLAMABAD: A 50 percent increase in price of cigarettes would lead to the same amount of reduction in tobacco demand in Pakistan, as majority of smokers would prefer to quit instead of switching to other brands.

This has been revealed in a research study, "Switch, Reduce or Quit: How do smokers respond to tobacco tax increases in Pakistan," recently carried out by Pakistan Institute of Development Economics (PIDE).

The PIDE study revealed that increase in prices would help reduce cigarette consumption, adding that higher the prices, higher the reduction will be.

It shows that only nine percent of cigarette users would opt to switch, while the rest would either opt to quit or to reduce their cigarette consumption. Of the nine percent who would switch, around 15 percent of users intend to switch to non-tobacco products. Hence, effectively the switching rate across brands and other tobacco products is only seven percent.

The study findings also invalidate the illicit trade argument advocated by the tobacco industry.

The findings that cigarette affordability facilitates smoking and that smokers do not switch to other brands or products - along with the fact cigarette prices are significantly lower than the smokers' willingness to pay - make a compelling case for effective tobacco taxation policies, study stated.

The tobacco excise taxes as a proportion of prices are much lower than the 70 percent minimum suggested by the Word Health Organization. The taxes should be increased at least to this threshold to have a meaningful impact on reducing cigarette consumption in Pakistan.

The relationship between successive price increases and intentions to quit smoking is explored. In the survey, smokers were given various scenarios of price increases (20 percent, 30 percent, 40 percent, and 50 percent) in their preferred product and were asked if they would continue to use it in the case of such a price hike.

Those who said they will not quit at a 20 percent price increase were subsequently asked the same question with a 30 percent increase in price and so on. The results show the higher the percentage increase in price, the lower the number of people who would continue to smoke.

The stated preferences by smokers for different price hikes result in an inverse relationship between price and demand for cigarettes, it said.

There is plenty of room for significant increases in tobacco taxes, it said, adding that the mean maximum willingness to pay (MWTP) of Rs35.80 per stick translates to Rs716 (US$ 4.5) for a pack of 20 cigarettes.

The market survey shows that prices of even top brands in Pakistan are almost three times lower than the MWTP of cigarette consumers. This demonstrates how low the price of cigarettes is in Pakistan, the study added.

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