Excise Tax Increase on Cigarettes: A Laudable Policy that Needs to be Sustained

This Policy Brief was written by the Social Policy and Development Centre (SPDC) in Pakistan. The policy brief assesses the impact of the tax increases implemented over the course of the current fiscal year. Since 2021-22, the FED rate on cigarettes increased by 209%, on average, and the average price of cigarettes increased by 169.6%. The tax share of price, though, remains lower than the recommended minimum of 70% of the retail price due to producers increasing prices more than the tax increase, or overshifting. Between 2020-21 and 2022-23, the tax share of price decreased from 45.7% to 41% before increasing slightly to 51.6%. Cigarettes also became less affordable due to the tax increase. The percent of per capita income required to purchase 2000 sticks of the most-sold brand increased from 4% to 6.2% from 2019-20 to 2022-23, after dipping to 3% in 2021-22. The policy brief concludes with recommendations for policy makers to continue this progress towards effective tax policies as well as address the challenges with tobacco control including production front-loading (when companies stockpile inventory when taxes are lower) and illicit trade.