Tax Law Ordinance 2022: A Long-awaited Excise Tax Increase on Cigarettes

This Fact Sheet was written by the Social Policy and Development Centre (SPDC) in Pakistan. The fact sheet assesses the predicted impact of the recently passed Tax Law Ordinance 2022, under which the Federal Excise Duty (FED) on cigarettes will increase by an average of 24.5%. This amendment further increases the FED from the 12.5% average increase in Finance Act 2022. The researchers estimate that this FED increase will raise low-tier and high-tier cigarette prices by 25.3% and 35.5%, respectively. Still, the excise tax share of price is expected to increase only from 40.4% to 44.3%, which is significantly lower than the recommended minimum of 70%. The price increase is estimated to reduce consumption by 4.7%, and encourage 400,000 adult smokers to quit smoking, while discouraging 435,000 youth from beginning to smoke. At the same time, this amendment is predicted to raise an additional PKR 25.2 billion, including PKR 19.1 billion raised from the FED and PKR 6.1 billion raised from the General Sales Tax. The fact sheet highlights the expected fiscal and health benefits of this tax increase.