ISLAMABAD: The government’s dramatic increase in cigarette taxes has unexpectedly catalyzed a booming illegal market, undermining efforts to curb smoking and reducing tax revenue.

The findings come from a study titled “The Impact of Cigarette Price Increase on Smoking Behavior & Patterns,” conducted by Umeed-e-Sehar, an organization focused on public health initiatives in Pakistan.

The study revealed that 154 percent rise in federal excise duty (FED) on cigarettes, aimed at making smoking prohibitively expensive, has driven consumers towards cheaper, tax-evaded brands.

The well-intentioned policy to reduce tobacco consumption has backfired, as many smokers now turn to the black market for their supplies. This development not only disrupts public health objectives but also complicates regulatory efforts and creates avenues for untaxed, potentially more dangerous products.

A substantial 89 percent of survey respondents admitted their smoking habits remained unchanged despite the price increase, with 80 percent switching to more affordable brands. Alarmingly, 67 percent of these smokers opted for illegal cigarette brands, which do not contribute to tax revenue, while only 33 percent continued to buy tax-paid cigarettes.

The study’s data is drawn from a sample of 1,698 smokers out of 2,000 individuals surveyed, along with insights from 60 retailer shops in cities such as Mardan, Hyderabad, Multan, Faisalabad, Sahiwal, and Gujranwala.

The report highlights that the substantial FED hike on cigarettes has not succeeded in making smoking unaffordable. Instead, the increased taxes have led smokers to switch from premium brands to cheaper, illicit alternatives, contravening the government’s goals.

Retailers confirmed this trend, with 87 percent reporting a surge in demand for cheaper, non-tax-paid cigarettes following the price hike.

Furthermore, 83.5 percent of retailers noted the absence of tax stamps on these products, pointing to widespread tax evasion. The study also revealed that approximately 62.4 percent of respondents now purchase cigarette brands priced between Rs80 and Rs120, indicating a significant shift towards low-cost, untaxed products.

Copyright Business Recorder, 2024


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