High FED on cigarettes helps boost tax revenue, reduce consumption

ISLAMABAD: The government’s policy decision to raise the Federal Excise Duty (FED) on cigarettes has resulted in a substantial increase in Federal Board of Revenue’s tax collection along with reduction in cigarette consumption during 2023-24.

The latest FBR Yearbook (2022-23) substantiated the noteworthy development, according to which the share of cigarettes in the overall Federal Excise Duty (FED) collection has escalated to 40 percent.

The report said that the share of the top ten sectors is about 94 percent and cigarettes stood at top of the list followed by cement with 18.7 percent and concentrated 9.6 percent share.

This upswing is chiefly attributed to the imposition of higher FED rates on cigarettes. The fiscal year 2022-23 saw three significant upward revisions, ending a three-year stagnation period.

“One of the major sectors which contributed to the FED revenues included cigarettes due to both inflation and increase in excise duty rates,” the FBR Yearbook said.

Tax experts said that the impact of the raised FED collection in 2022-23 has shown its impact on consumption of cigarettes in the current fiscal year.

As cigarette consumption diminishes, the consequential reduction in health-related issues could result in a positive impact on healthcare expenditures, contributing to a healthier and more sustainable society.

The decrease in tobacco usage also aligns with the broader public health objective.

A study by the Pakistan Institute of Development Economics (PIDE) brings attention to the significant economic impact of the use of tobacco, according to which costs linked to diseases and deaths resulting from smoking in 2019 reached a staggering Rs 615.07 billion ($ 3.85 billion), equivalent to 1.6 percent of the GDP.

Commenting on the development, Malik Imran Ahmed, Country Director, Campaign for Tobacco Free Kids (CTFK) said that the tobacco industry had expressed discontent over the increase of FED claiming it would result in the shutdown.

However, the FBR’s data has challenged the industry’s assertion showing a significant 40 percent share of the FED.

Independent experts have emphatically called upon the FBR to implement World Bank’s recommendation advising increase in FED on cigarettes, in a recent report Pakistan Development Update (PDU).

“A substantial revenue gain of 0.4 percent of GDP could be achieved if the current rate on premium cigarettes (Rs 16.50 per cigarette) was also applied to standard cigarettes,” the report said.

The guidelines of the WHO Framework Convention on Tobacco Control (FCTC) also emphasize the pivotal role of taxation as a primary tool in mitigating tobacco consumption.

Copyright Business Recorder, 2024