Budget 2022-23: Revenue and Health Implications of Excise Tax Increase on Cigarettes [Fact Sheet]

This Fact Sheet was written by Social Policy and Development Centre in Pakistan. The fact sheet simulates the impact of the increase in cigarette excise taxation passed in the Finance Act 2022 of Budget 2022-23, as well as an alternative 30% increase in the FED rate. The Finance Act 2022 increases the Federal Excise Duty (FED) rate for low-priced and high-priced cigarettes by 12.1% and 13.5%, respectively, for a weighted average increase of 12.5%. The price of cigarettes would increase by an average of 8.2% following a 12.5% FED rate increase compared to 16.2% following a 30% FED rate increase. Despite the modest price increase from the adopted tax increase, cigarettes would become more affordable in 2022-23 compared to 2020-21 due to inflation and income growth. In the adopted tax increase, the total cigarette consumption would fall by 4.5%, while raising PKR 13.5 billion in additional revenue. In contrast, a 30% FED rate increase would reduce consumption by 7.6% and raise PKR 27.2 billion in additional revenue. The researchers also find that a 30% FED rate increase would encourage 641,000 current smokers to quit, and discourage 696,000 youth from becoming smokers. Adults who continue to smoke would reduce their smoking intensity by more than 1.2%. The reduction in the number of smokers would prevent 72,000 adult smoking-attributable deaths. A 12.5% increase in the FED would yield far fewer public health benefits. The fact sheet demonstrates the opportunity for policy makers to reap additional benefits by further increasing the excise tax rate. 

A corresponding Policy Note can be found here.