A Welcome but Insufficient Reform: Excise Tax Increase on Cigarettes

Download PDF

Under the Finance Bill 2022, presented on June 10, 2022, in the National Assembly of Pakistan, the government proposed to revise the Federal Excise Duty (FED) rates on domestically-produced cigarettes. Keeping the two-tier system intact, the FED rates increased by 7.7 percent and 12.1 percent for high-priced and low-priced brands, respectively. This is a long-waited increase since the rates were last revised in July 2019. Though much lower than the widely advocated increase of at least 30 percent, it is a positive step that has broken the stagnation in cigarette tax rates. However, larger tax increases are needed to offset the damage done by the lax cigarette tax policy of the past three years. This policy brief assesses the expected impact of tax and price increases on cigarette consumption, tax revenues, and health outcomes using a tax simulation model.