Harnessing tobacco taxation for economic revitalisation

Pakistan faces multifaceted economic challenges; and amidst these, the role of tobacco taxation emerges as a potential avenue for financial rejuvenation.

There is an urgent need to explore how strategic reforms in tobacco taxation can contribute to addressing Pakistan’s economic issues, including revenue generation, healthcare financing, and public health improvements. By examining the economic impact of tobacco taxation, we can better understand the potential benefits for Pakistan’s economy. Sustainable Development Policy Institute (SDPI) is also organising a panel discussion on this vital issue.

Pakistan’s economy grapples with various challenges, including fiscal deficits, a high debt burden, and a need for increased revenue sources. As per the study conducted by SPDC (social policy and development centre), total health burden on Pakistan’s economy caused by tobacco alone is Rs 615 billion per year, out of which all tobacco producing entities pay a total of almost 130 billion (max).

The healthcare system faces strain due to the rising prevalence of tobacco-related diseases, including cancers, work force depletion and economic burden, leading to increased healthcare expenditures. In this context, leveraging tobacco taxation emerges as a critical policy tool that can simultaneously bolster the economy, generate revenue, and promote public health.

Increasing taxes on tobacco products can serve as a robust mechanism for revenue generation. Pakistan’s tobacco industry is one of the many large multinationals contributing to the country’s tax revenue. However, current tax structures may not be optimised for maximising revenue while minimising the negative externalities associated with tobacco use. Reforms in the taxation system can ensure that the tobacco industry bears a fair share of the economic burden it imposes on society.

Examining successful tobacco taxation models from around the world provides valuable insights. Countries like Australia, the United Kingdom, and Thailand have implemented progressive and evidence-based tobacco taxation policies that not only generate substantial revenue but also contribute to significant reductions in smoking prevalence. By learning from these experiences, Pakistan can tailor its tobacco taxation strategy to align with its economic and public health goals.

Redirecting revenue generated from increased tobacco taxes toward healthcare financing can address the strain on the healthcare system. Allocating a portion of the funds to public health initiatives, disease prevention, and NCD (non-communicable disease) treatment programmes can enhance the overall health outcomes of the population. This dual-purpose approach not only generates revenue but also contributes to mitigating the healthcare burden caused by tobacco-related illnesses.

Apart from the economic advantages, higher tobacco taxes can lead to substantial public health benefits. By making tobacco products less affordable, especially for vulnerable populations, higher taxes can discourage smoking initiation and promote smoking cessation. This, in turn, reduces the prevalence of tobacco-related diseases, leading to long-term healthcare cost savings and improved productivity.

It is crucial to consider the potential regressive impact of tobacco taxes on low-income individuals. Implementing complementary policies, such as targeted social programs and smoking cessation support, can help mitigate the socioeconomic disparities exacerbated by higher tobacco usage. This inclusive approach ensures that the economic benefits of taxation are equitably distributed across the population.

Developing and implementing effective long-term multisectoral tobacco taxation policies require a robust monitoring and evaluation system. Pakistan has implemented tobacco track-and-trace-System (TTS) to monitor tobacco growth, products being manufactured and sold.

However, smokeless tobacco such as Naswar is still outside the taxation gambit. Regular assessments of the economic impact, revenue generation, and public health outcomes allow policymakers to make data-driven adjustments and optimize the effectiveness of the taxation strategy. Continuous evaluation ensures that the policy remains aligned with evolving economic and health priorities.

While the potential benefits of tobacco taxation are substantial, it is essential to acknowledge and address potential challenge in Pakistan. The tobacco industry may resist tax increases, at the behest of concerns about illicit trade; however, preventing illicit tobacco products has a distinct and well pronounced mechanism in place. Implementing transparent and well-enforced systems, engaging stakeholders, and learning from the experiences of other countries can help navigate these challenges effectively.

Harnessing tobacco taxation as a tool for economic revitalisation in Pakistan requires a comprehensive and evidence-based approach. By strategically reforming tobacco taxation system, Pakistan can not only address economic challenges but also improve public health outcomes.

The synergy between increased revenue, healthcare financing, and reduced tobacco consumption can pave the way for a healthier and economically vibrant future for Pakistan. Policymakers must consider international best practices, prioritise public health, and remain vigilant in the face of industry opposition to unlock the full potential of tobacco taxation for the country’s economic well-being.

(Dr Waseem Janjua is a tobacco control advocate and Syed Ali Wasif Naqvi heads the Centre for Health Policy and Innovation at the Sustainable Development Policy Institute (SDPI), Islamabad)

Copyright Business Recorder, 2024