In a recent media interaction, the Society for the Protection of the Rights of the Child (SPARC) and health advocates shed light on a critical recommendation made in the World Bank’s Pakistan Development Update (PDU) report. The report highlights the potential for a healthier future for Pakistan’s youth and a significant boost to the country’s revenue through an increase in federal excise duty on cigarettes. In this blog post, we will delve into the key points raised during this media interaction and explore the implications of aligning cigarette taxation with the World Bank’s recommendation.
The World Bank’s Recommendation:
The central focus of the discussion was the World Bank’s recommendation to increase the federal excise duty on cigarettes in Pakistan. According to the report, applying the current rate on premium cigarettes (Rs. 16.50 per cigarette) to standard cigarettes could result in a substantial revenue gain of 0.4 percent of GDP, equivalent to Rs. 505.26 billion.
Economic and Health Benefits:
The report emphasizes that raising cigarette taxes not only holds the potential for economic benefits but also plays a crucial role in safeguarding public health. Cigarette taxation has remained relatively stable at 0.19% of GDP in recent years, contributing to only 0.5% of GDP in federal excise duty collections. By aligning cigarette taxation with the World Bank’s recommendation, Pakistan can significantly enhance both fiscal resources and public health outcomes.
The Dual Rate System:
Currently, cigarettes in Pakistan are taxed through a dual rate system, with different tax rates applied to premium and standard cigarettes. SPARC supports the World Bank’s findings that applying the premium cigarette tax rate to standard cigarettes could lead to a substantial revenue gain. This underscores the need for swift action to implement this measure.
Low Cigarette Prices:
One of the concerns highlighted in the report is that cigarette prices in Pakistan are among the lowest in the region due to lenient cigarette taxation. This affordability factor contributes to high smoking rates and associated health risks. Eliminating the dual tax rates on different cigarette slabs and implementing a single tax rate is suggested as a way to rectify this issue and align with the World Bank’s recommendation.