Budget 2022-23- A Welcome but Insufficient Reform: Excise Tax Increase on Cigarettes

This Policy Brief was written by Social Policy and Development Centre in Pakistan. The policy brief estimates the impact of the newly-proposed tax reform in the Finance Bill 2022. This reform would increase the Federal Excise Duty (FED) rate on both the high-price and low-price cigarette brand tiers by 7.7% and 12.1%, respectively. This would result in an average excise tax increase of 10.8%, and when combined with recent tobacco industry price increases, would reduce consumption by 4.3%. Despite this increase, the excise tax share of retail price would decline from 44.7% to 39.4%. Further, cigarette prices would not keep up with inflation, so cigarettes would become more affordable in 2022-23 compared to 2020-2021. The researchers find that a larger 30% increase in cigarette excise taxes would reduce affordability and result in more pronounced public health and fiscal benefits. Under the proposed reform, consumption would decrease by 154 billion packs and the government would raise an additional 11.7 billion Rs. However under a more significant increase of 30%, consumption would decrease by 272 billion packs and raise 26.6 billion Rs. The policy brief demonstrates the opportunity for policy makers to continue to raise cigarette taxes in Pakistan.