Proposal to Increase Federal Tobacco Tax by 19% in Pakistan Budget

According to a report from Pakistan's Business Recorder on May 28, the Pakistan government may increase the federal excise duty (FED) on tobacco in the upcoming budget for the fiscal year 2024-25. The World Health Organization (WHO) and the Ministry of Health have also recommended increasing the FED tax rate to more effectively reduce the health burden associated with tobacco consumption.

According to a news report from 2024, the Ministry of Finance is expected to raise tax rates in the 2024 Finance Bill. One proposal being considered is to increase the federal excise tax on tobacco by 19%, despite recommendations from the World Health Organization (WHO) and the Ministry of Health to raise tobacco taxes by 37% and 20% respectively. The Federal Board of Revenue (FBR) in Pakistan has proposed to increase the federal excise tax on tobacco in the next fiscal year. During a budget preparation meeting between the FBR and various tobacco manufacturers, the latter expressed strong dissatisfaction with decreased production and increased domestic smuggling/illegal products.

The World Health Organization recommends increasing the federal consumption tax by 37% to bring the tax share of retail prices to the international standard of 70%. Various anti-smoking activists have submitted tax proposals to the Ministry of Health, including the WHO's recommendation, stressing that raising tobacco taxes can not only ease the burden on the healthcare system but also help increase revenue.

According to the tax proposal, maintaining the current federal consumption tax rate could lead to a decrease in health recovery. In order to achieve the same level of health cost recovery observed in 2023-24, the federal consumption tax rate would need to be increased by 37% next year. This would help generate an additional 600 billion rupees in goods and services tax from tobacco.

The cost of tobacco consumption on the healthcare system indicates that there are currently 31.6 million adults in the country using tobacco, resulting in over 160,000 deaths per year. The cost of smoking-related diseases and deaths accounts for at least 1.4% of the country's GDP.

From July 2023 to January 2024, tax revenues have reached 122 billion rupees (approximately 1.4 billion US dollars), with the full year's income expected to exceed 200 billion rupees (approximately 2.4 billion US dollars). The tax proposal suggests that increasing tobacco product taxes will help save lives, and the government should consider incorporating automatic adjustments to consumption taxes in the tobacco tax strategy for the next fiscal year 2024-25 to ensure it covers a certain percentage of the overall health costs associated with smoking.

The latest policy report "Restoring Medical Expenses, Saving Lives" suggests that the Social Policy Development Center (SPDC) is recommending a 37% increase in federal consumption tax in the next fiscal year budget. The Campaign for Tobacco-Free Kids (CTFK) has proposed a 26.6% increase in federal consumption tax for the 2024-25 fiscal year.