Pakistan remains at the bottom of the cigarette tax scorecard

Pakistan has scored 1.13 points out of 5 on the cigarette tax scorecard, standing at 131st position among 160 countries, which is a manifestation of a lax tax policy towards the tobacco sector.

The Tobacconomics, a collaboration of leading researchers working on the economics of tobacco control policy, has released the 2nd edition of the Tobacconomics Cigarette Tax Scorecard. The study assesses cigarette tax policy performance in 160 countries on a score of a five-point scale, providing policymakers with an actionable assessment of their country’s cigarette tax policy.

While the overall score of Pakistan (1.13) is well below the global average of 2.28, the country has also not performed well compared to other countries in the region. For instance, scores of Sri Lanka, Bangladesh, Iran and India are 3.63, 2.63, 2.0 and 1.75, respectively. The four grading components of the scorecard include cigarette price, change in cigarette affordability, tax share and excise tax structure, and Pakistan needs to improve in all these areas.

Cigarette prices in Pakistan are the lowest compared to the other countries in the region. According to WHO Report on the Global Tobacco Epidemic 2021, the price of a 20-cigarette pack of the most-sold brand in Pakistan was 2.1 International Dollars (Int’l $) in 2020. In contrast, it was Int’l $8.7 and 2.9 in India and Bangladesh, respectively. Sri Lanka had the highest prices of cigarettes in the region with Int’l $24.9. A major reason for the relatively low prices is the low rates of Federal Excise Duty (FED) on cigarettes in Pakistan. Currently, the average excise tax share is 45.4 percent of the retail price, much lower than the widely-accepted benchmark of 70 percent. The FED rates have not been changed since July 2019, making cigarettes cheaper and affordable due to a combination of two factors: no change in excise tax and increases in nominal income and inflation. The value of the inflation-adjusted price index declined from 108.4 in 2019-20 to 102.8 in 2020-21.

Tobacco taxation is widely regarded as the most effective and cost-effective measure to reduce tobacco use. Higher cigarette taxation can serve a dual objective of public health promotion and revenue generation in Pakistan. It is surprising that despite the financial crunch confronted by the government, an important source of revenue is not being exploited to its potential. A substantial increase in the FED is needed to reach the benchmark of 70 percent of the retail price. This would make cigarettes less affordable and discourage demand for cigarettes, and would also result in public health gains.

(The writer is Managing Director of Social Policy and Development Centre)

Copyright Business Recorder, 2021