Tobacco taxes – treaties, tensions, and trends

Pakistan faces a pressing need for a sustainable tobacco taxation policy, particularly as tobacco use imposes severe health and economic burdens on the country. With over 160,000 deaths annually due to tobacco-related illnesses and healthcare costs that exceed PKR 700 billion, the lack of a coherent taxation policy is impacting public health and the economy. Despite the growing toll, tobacco taxation in Pakistan remains inconsistent, allowing the industry to exploit various loopholes and limiting the effectiveness of tax policies meant to curb smoking rates. To create meaningful, long-term progress in tobacco control, Pakistan must adopt a well-structured taxation policy that addresses health priorities while generating stable government revenue.The Sustainable Development Policy Institute (SDPI) in multiple studies has emphasized the potential of tobacco taxes as a tool to generate substantial funds that can be reinvested in healthcare and anti-smoking programs. However, the current tax landscape lacks coherence and is prone to manipulation. By introducing predictable, annual tax increases and enforcing a uniform excise tax on all tobacco products, Pakistan could establish a steady revenue stream while deterring smoking initiation and encouraging cessation. Research from the World Bank and WHO confirms that consistent and gradually increasing taxes significantly reduce consumption, especially among youth and lower-income groups. Pakistan’s ad hoc tax approach, influenced by industry pressure and political shifts, has yet to deliver these outcomes. A long-term taxation policy—one that closes loopholes, sets high uniform rates, and ensures that excise tax rises annually—would be a powerful public health measure and a stable revenue source. Unfortunately, the lack of a progressive tax policy has allowed tobacco companies in Pakistan to sidestep higher taxes through tactics like front-loading, price-smoothing, and brand-switching. These strategies enable companies to keep their products affordable even in the face of tax increases, diminishing the public health impact of tax policies. For instance, the reclassification of premium brands into lower-tax tiers effectively nullifies tax increases intended to make these products less accessible. Such practices not only make tobacco affordable but also drive down potential tax revenues, a significant loss for Pakistan’s economy and health system.An effective policy would enforce tier-free taxation, eliminating avenues for companies to sidestep tax obligations through brand shifting or other strategies. Examples from other countries highlight the benefits of a robust, single-tier taxation system. The Philippines, for instance, implemented a sin tax reform law that eliminated multi-tiered taxes on tobacco products, reducing consumption rates and generating revenue that the government then allocated to healthcare services. In Pakistan, a similar streamlined tax system could generate critical revenue while also addressing rising tobacco use, particularly among younger demographics.Additionally, the studies have also pointed out that a well-structured tax system would not only benefit public health but could also provide a foundation for addressing other Sustainable Development Goals (SDGs), particularly SDG 3, which promotes health and well-being. Tobacco taxation could further contribute to SDG 1 by reducing the financial burden of smoking-related illnesses on low-income households, freeing up household income for other needs. Countries like Thailand and South Africa have illustrated how sustained tobacco tax increases contribute to both economic stability and improved public health outcomes, aligning well with SDG priorities. A similar approach could significantly strengthen Pakistan’s public health infrastructure, decrease smoking prevalence, and provide much-needed support for national healthcare initiatives.However, the path to a consistent tobacco taxation policy is not without challenges. The tobacco industry wields considerable influence over policymaking and public opinion in Pakistan, often framing tax increases as detrimental to both consumers and the economy. Industry representatives frequently claim that higher taxes will drive up illegal cigarette trade and harm small retailers. Yet, studies from SDPI and other organizations show that these claims are exaggerated. With strong enforcement of anti-smuggling laws and transparent monitoring, these risks can be minimized. The European Union’s Track and Trace system serves as a compelling example: by closely monitoring tobacco distribution, EU countries have significantly curbed illegal trade. Pakistan’s recent adoption of a Track and Trace system offers a similar opportunity, but strict enforcement will be essential to prevent industry manipulation.One way to curb industry influence and strengthen public support is to clearly delineate the roles of industry and policymakers, as the WHO Framework Convention on Tobacco Control (FCTC) recommends. The FCTC guidelines underscore the need for governments to protect public health policies from vested corporate interests. To build public trust and counter the tobacco industry’s lobbying efforts, civil society organizations can play a vital role, helping to raise awareness about the importance of tobacco taxes and mobilizing community support for policies that prioritize health over industry profits. In this vein, SDPI has been a key advocate for increased transparency in tobacco control policymaking, providing valuable data and analysis to counter misleading industry narratives and spotlighting the significant health and economic benefits of robust taxation.A reliable tobacco taxation policy is also essential for addressing market distortions within Pakistan’s tobacco sector. Without consistent tax increases, tobacco products remain affordable for consumers, especially the youth. When adjusted for inflation, tobacco prices often become cheaper over time, undermining the deterrent effect of taxation. A policy that aligns tax increases with inflation, ensures transparency, and introduces predictable, incremental hikes in excise tax will help maintain the real cost of tobacco, thereby sustaining the incentive for people to quit or reduce consumption. Aligning tax policies with inflation would further ensure that tobacco products do not become increasingly accessible, which is essential for reducing smoking rates in the long term.Further, a dedicated tax policy that earmarks funds specifically for health initiatives could allow Pakistan to achieve significant progress in tobacco control. Countries like the Philippines and Brazil have demonstrated the effectiveness of allocating tobacco tax revenue to health programmes, which in turn supports anti-tobacco campaigns and tobacco cessation services. Pakistan could also allocate a portion of tobacco tax revenue to strengthen its healthcare infrastructure, particularly in rural areas, where health services are often limited. Reinvesting tobacco tax revenue into public health programmes would address the healthcare costs associated with smoking-related illnesses, while enabling tobacco control initiatives to reach vulnerable populations more effectively.To develop a truly sustainable multi-sectoral, long-term tobacco tax policy, Pakistan needs both political will and a commitment to prioritizing public health over industry interests. A transparent policymaking process, one that includes civil society input and relies on reliable data, can help protect the policy from industry lobbying. The SDPI’s research and advocacy on this front have underscored the urgent need for such a policy shift, as it would benefit not only public health but also economic stability. Tobacco taxes offer a dual advantage: they reduce smoking rates and generate revenue that can be reinvested into national health systems, ultimately easing the economic burden of smoking on Pakistan’s healthcare infrastructure.Pakistan stands to gain significantly from a long-term, transparent, and consistent tobacco taxation policy that aligns with its public health and economic goals. By setting clear taxation guidelines, eliminating multi-tier taxes, and enforcing strict anti-smuggling measures, the country could decrease tobacco consumption and create a sustainable revenue stream for health programmes. Such a policy, in conjunction with strong public health messaging and civil society support, would put Pakistan on the path to achieving its Sustainable Development Goals while protecting future generations from the harmful effects of tobacco. Adopting this approach without delay is essential—each year of inaction only deepens the toll tobacco takes on Pakistan’s health and economic landscape.Copyright Business Recorder, 2024

Pakistan faces a pressing need for a sustainable tobacco taxation policy, particularly as tobacco use imposes severe health and economic burdens on the country. With over 160,000 deaths annually due to tobacco-related illnesses and healthcare costs that exceed PKR 700 billion, the lack of a coherent taxation policy is impacting public health and the economy. Despite the growing toll, tobacco taxation in Pakistan remains inconsistent, allowing the industry to exploit various loopholes and limiting the effectiveness of tax policies meant to curb smoking rates.

To create meaningful, long-term progress in tobacco control, Pakistan must adopt a well-structured taxation policy that addresses health priorities while generating stable government revenue. The Sustainable Development Policy Institute (SDPI) in multiple studies has emphasized the potential of tobacco taxes as a tool to generate substantial funds that can be reinvested in healthcare and anti-smoking programs. However, the current tax landscape lacks coherence and is prone to manipulation.

By introducing predictable, annual tax increases and enforcing a uniform excise tax on all tobacco products, Pakistan could establish a steady revenue stream while deterring smoking initiation and encouraging cessation. Research from the World Bank and WHO confirms that consistent and gradually increasing taxes significantly reduce consumption, especially among youth and lower-income groups. Pakistan’s ad hoc tax approach, influenced by industry pressure and political shifts, has yet to deliver these outcomes.

A long-term taxation policy—one that closes loopholes, sets high uniform rates, and ensures that excise tax rises annually—would be a powerful public health measure and a stable revenue source. Unfortunately, the lack of a progressive tax policy has allowed tobacco companies in Pakistan to sidestep higher taxes through tactics like front-loading, price-smoothing, and brand-switching. These strategies enable companies to keep their products affordable even in the face of tax increases, diminishing the public health impact of tax policies.

For instance, the reclassification of premium brands into lower-tax tiers effectively nullifies tax increases intended to make these products less accessible. Such practices not only make tobacco affordable but also drive down potential tax revenues, a significant loss for Pakistan’s economy and health system. An effective policy would enforce tier-free taxation, eliminating avenues for companies to sidestep tax obligations through brand shifting or other strategies.

Examples from other countries highlight the benefits of a robust, single-tier taxation system. The Philippines, for instance, implemented a sin tax reform law that eliminated multi-tiered taxes on tobacco products, reducing consumption rates and generating revenue that the government then allocated to healthcare services. In Pakistan, a similar streamlined tax system could generate critical revenue while also addressing rising tobacco use, particularly among younger demographics.

Additionally, the studies have also pointed out that a well-structured tax system would not only benefit public health but could also provide a foundation for addressing other Sustainable Development Goals (SDGs), particularly SDG 3, which promotes health and well-being. Tobacco taxation could further contribute to SDG 1 by reducing the financial burden of smoking-related illnesses on low-income households, freeing up household income for other needs. Countries like Thailand and South Africa have illustrated how sustained tobacco tax increases contribute to both economic stability and improved public health outcomes, aligning well with SDG priorities.

A similar approach could significantly strengthen Pakistan’s public health infrastructure, decrease smoking prevalence, and provide much-needed support for national healthcare initiatives. However, the path to a consistent tobacco taxation policy is not without challenges. The tobacco industry wields considerable influence over policymaking and public opinion in Pakistan, often framing tax increases as detrimental to both consumers and the economy.

Industry representatives frequently claim that higher taxes will drive up illegal cigarette trade and harm small retailers. Yet, studies from SDPI and other organizations show that these claims are exaggerated. With strong enforcement of anti-smuggling laws and transparent monitoring, these risks can be minimized.

The European Union’s Track and Trace system serves as a compelling example: by closely monitoring tobacco distribution, EU countries have significantly curbed illegal trade. Pakistan’s recent adoption of a Track and Trace system offers a similar opportunity, but strict enforcement will be essential to prevent industry manipulation. One way to curb industry influence and strengthen public support is to clearly delineate the roles of industry and policymakers, as the WHO Framework Convention on Tobacco Control (FCTC) recommends.

The FCTC guidelines underscore the need for governments to protect public health policies from vested corporate interests. To build public trust and counter the tobacco industry’s lobbying efforts, civil society organizations can play a vital role, helping to raise awareness about the importance of tobacco taxes and mobilizing community support for policies that prioritize health over industry profits. In this vein, SDPI has been a key advocate for increased transparency in tobacco control policymaking, providing valuable data and analysis to counter misleading industry narratives and spotlighting the significant health and economic benefits of robust taxation.

A reliable tobacco taxation policy is also essential for addressing market distortions within Pakistan’s tobacco sector. Without consistent tax increases, tobacco products remain affordable for consumers, especially the youth. When adjusted for inflation, tobacco prices often become cheaper over time, undermining the deterrent effect of taxation.

A policy that aligns tax increases with inflation, ensures transparency, and introduces predictable, incremental hikes in excise tax will help maintain the real cost of tobacco, thereby sustaining the incentive for people to quit or reduce consumption. Aligning tax policies with inflation would further ensure that tobacco products do not become increasingly accessible, which is essential for reducing smoking rates in the long term. Further, a dedicated tax policy that earmarks funds specifically for health initiatives could allow Pakistan to achieve significant progress in tobacco control.

Countries like the Philippines and Brazil have demonstrated the effectiveness of allocating tobacco tax revenue to health programmes, which in turn supports anti-tobacco campaigns and tobacco cessation services. Pakistan could also allocate a portion of tobacco tax revenue to strengthen its healthcare infrastructure, particularly in rural areas, where health services are often limited. Reinvesting tobacco tax revenue into public health programmes would address the healthcare costs associated with smoking-related illnesses, while enabling tobacco control initiatives to reach vulnerable populations more effectively.

To develop a truly sustainable multi-sectoral, long-term tobacco tax policy, Pakistan needs both political will and a commitment to prioritizing public health over industry interests. A transparent policymaking process, one that includes civil society input and relies on reliable data, can help protect the policy from industry lobbying. The SDPI’s research and advocacy on this front have underscored the urgent need for such a policy shift, as it would benefit not only public health but also economic stability.

Tobacco taxes offer a dual advantage: they reduce smoking rates and generate revenue that can be reinvested into national health systems, ultimately easing the economic burden of smoking on Pakistan’s healthcare infrastructure. Pakistan stands to gain significantly from a long-term, transparent, and consistent tobacco taxation policy that aligns with its public health and economic goals. By setting clear taxation guidelines, eliminating multi-tier taxes, and enforcing strict anti-smuggling measures, the country could decrease tobacco consumption and create a sustainable revenue stream for health programmes.

Such a policy, in conjunction with strong public health messaging and civil society support, would put Pakistan on the path to achieving its Sustainable Development Goals while protecting future generations from the harmful effects of tobacco. Adopting this approach without delay is essential—each year of inaction only deepens the toll tobacco takes on Pakistan’s health and economic landscape. Copyright Business Recorder, 2024.