Cigarette Consumption Plummets Following Tax Increase

• Studies show that the actual share of illicit cigarettes is around 18%
• Expenditure on tobacco-related diseases annually is expected to reduce
• WHO recommends public to support the government's move to discourage tobacco consumption

It is expected that the Pakistani government will generate an additional Rs60 billion in revenue through windfall taxes on tobacco products this year, following an increase in the federal excise duty (FED).

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WHO recommends public to support the government's move to discourage tobacco consumption

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Studies show that the actual share of illicit cigarettes is around 18%

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Expenditure on tobacco-related diseases annually is expected to reduce

This is according to social activists who have rejected multinational tobacco companies' claims of illicit cigarettes in the market. The companies have falsely claimed since 2014 that the share of illicit cigarettes is 40% of the market, causing panic in the government.

However, independent studies show that the actual share of illicit cigarettes is around 18%, with a major part of this activity belonging to multinational brands.

Malik Imran, the country head of Campaign for Tobacco-Free Kids, says that the track and trace system has almost eliminated the possibility of illicit trade of cigarettes. They conducted a survey to explore the volume of illicit cigarettes in the market, which will be made public next week, but tentatively, they can say the volume is negligible.

He also accused multinational cigarette makers of spreading propaganda that the volume of illicit trade is increasing after the rise in taxes on cigarettes, which is an attempt to pressure the government.

The implementation of the track and trace system has also led to a decline in cigarette consumption, which is expected to reduce the health cost of cigarettes from over three billion dollars annually to one billion dollars.

Furthermore, after increasing the taxes on cigarettes, the volume of expenditure on tobacco-related diseases annually is expected to be reduced from Rs 620 billion to Rs 200 billion.

A research study estimates that the illicit trade market, as a percentage of the total cigarette market in Pakistan, ranges from 9% to 18%. In contrast, the Pakistan Tobacco Company, a subsidiary of British American Tobacco, claims that illicit trade was 40% of the total sales volume.

Panel data analysis reveals that approximately four billion cigarette sticks were underreported in 2020-21, leading to a loss of more than PKR 23.5 billion in revenue over the last three years.

The increase in FED on cigarettes is in line with the World Health Organization's recommendations, and the public should support the government's move to discourage tobacco consumption.

Higher taxes on tobacco products are the only solution to protect the youth from the menace. The government should stand by its decision to increase the FED, as this would help collect additional revenue of Rs60 billion from taxes on cigarettes.

Multinational tobacco companies have been accused of showing their production less to the government to evade taxes and then selling their underreported stock in the open market, causing a loss of billions of rupees to the national exchequer.