Facts vs Industry Narrative: Cigarette Production and Taxation in Pakistan

This Policy Brief was written by the Social Policy and Development Centre (SPDC) in Pakistan. The policy brief examines the impact of the recent cigarette tax increase on cigarette production, company profitability, and government tax revenues. The authors find that cigarette production decreased following the increase in the excise tax rate, but production trends over time do not seem to be caused by changes in tax or price policies. Instead, production fluctuates as the industry uses various tactics to avoid tax increases and influence tax policy. The financial statements from the country's three largest tobacco companies further demonstrate that profits are increasing despite the implemented tax reform. Government tax collection from cigarettes also increased by PKR 7 billion when comparing revenues from July to March of FY 22-23 to those in FY 21-22. The policy brief demonstrates the positive impact of raising tobacco taxes, contradicting claims from the tobacco industry.