Increasing Taxes On Tobacco, Its Positive Impact On Revenue Discussed

Tax policy on tobacco consumption has yet to achieve its goals, contrasting with successful efforts seen in other parts of the world through high taxation. It is because of the myth prevailing among policymakers that increasing taxes would hinder the revenue of the tobacco industry. Reports from groups of health activists run counter to this myth, stating that in 2019, when the government tightened tax policies, the industry's tax contribution increased to 120 billion Pakistani rupees (Rs) compared to Rs 92 billion in 2016. Additionally, the tobacco industry's share of total tax collection rose from 2.15 percent to 3 percent in FY16.

Malik Imran, an anti-tobacco activist, has consistently made it clear that increasing tobacco taxes leads to a reduction in tobacco consumption. Despite this empirical evidence, taxation policy remains weak in its battle against tobacco.

Capital Calling, a network of academic researchers and professionals, believes that this reluctance to effectively utilize tax policy to curb tobacco consumption may be attributed to the absence of a reliable estimate of the true economic costs of smoking.

Multinational tobacco companies have been claiming that tax increases would adversely impact their businesses and potentially force them to shut down production facilities. Consequently, the rise in Federal Excise Duty (FED) has fueled the growth of the illicit market, which now holds a 40 to 42 percent market share. They also claim that this has compelled international companies to shut down 40 percent of their production facilities due to significantly decreased sales.

Khalil Dogar, another anti-tobacco activist, says that these techniques are merely employed to pressure the government against increasing taxes. Presently, every sector, including tobacco, faces challenges due to the economic downturn, with the textile sector experiencing a 50 percent dip and companies like Honda and Toyota being forced to close factories.

Similarly, a subsidiary of a multinational cigarette maker in Pakistan has said that some of its production units are being shut down. Dr. Hassan Shehzad, from IIUI, says that the priority for the government should not be the protection of industry or a non-essential commodity but public health. Increasing tobacco costs not only generates revenue but also cuts spending on tobacco-caused diseases.

Sanaullah Ghumman, a long-time anti-tobacco activist, has been constantly calling for meeting the World Health Organization's (WHO) guidelines denoting that tobacco should be taxed on a regular basis.

International tobacco companies have a history of pressuring governments worldwide, and Pakistan is no exception. Capital Calling recommends that the government stand firm and maintain its existing policy, which discourages tobacco consumption through increased taxation.

The total costs attributable to smoking-related diseases and deaths in Pakistan for 2019 amount to Rs 615.07 billion ($3.85 billion), with indirect costs (morbidity and mortality) constituting 70 percent of the total. Cancer, cardiovascular diseases, and respiratory ailments account for the majority (71 percent) of smoking-induced costs. The direct cost attributable to smoking represents 8.3 percent of total health expenditures, a considerable burden, states Capital Calling, citing different civil society reports.

It says that it is imperative for the government to prioritize public health over corporate pressure and stay committed to its existing policy aimed at discouraging tobacco use through higher taxation. The significant revenue collected and the substantial positive impact on citizens' health far outweigh any financial losses incurred. Pakistan must seize this opportunity to implement robust tax policies that align with global tobacco control frameworks and safeguard the well-being of its population.