Tax hike in Pakistan cuts cigarette consumption, says IMF

ISLAMABAD: The International Monetary Fund (IMF) has said that cigarette consumption in Pakistan has notably declined by 20-25 per cent following a significant increase in taxes on tobacco products.

This revelation is featured in the Technical Assistance Report of the commission – Pakistan Tax Policy Diagnostic and Reform Options, released in February.

Previously, the global lender advocated for the imposition of uniform excise rates on both local and foreign cigarette manufacturers. The IMF’s proposal, aiming to address health concerns associated with smoking while ensuring fair taxation practices, suggests subjecting e-cigarettes to similar taxation as traditional tobacco products, citing comparable health impacts.

Read more: IMF urges Pakistan to tax e-cigarettes to boost revenue

Capital Calling, an Islamabad-based think tank, has endorsed the IMF’s recommendation, aligning it with the guidelines set forth by the World Health Organization (WHO). The objective behind these proposals is to establish equitable taxation across all cigarette products, regardless of their origin.

Health activists have rallied behind the IMF’s stance, emphasizing the need for restructuring tobacco taxation in Pakistan. At a recent event organized by the Society for the Protection of the Rights of the Child (SPARC), activists urged the Government of Pakistan to transition to a single-tier tobacco taxation system, thereby eliminating the existing dual-tier system.

Campaign for Tobacco-Free Kids (CTFK) Country Head Malik Imran Ahmed underscored the alignment between the IMF’s recommendations and ongoing discussions within Pakistan. These discussions aim to address fiscal and external sustainability weaknesses while promoting economic recovery and inclusive growth. Ahmed stressed the urgent need to reform Pakistan’s cigarette taxation system as part of broader efforts to strengthen public finances and enhance debt sustainability.

The IMF’s advocacy for taxation on tobacco products is not only aimed at reducing cigarette consumption but also at generating additional revenue for the government. By implementing uniform excise rates and eliminating disparities between local and foreign cigarette manufacturers, Pakistan can streamline its taxation system and alleviate the healthcare costs associated with tobacco-related illnesses.

Ahmed emphasized that as Pakistan continues to navigate economic challenges, policymakers must heed the IMF’s recommendations regarding tobacco taxation. By prioritizing public health and fiscal sustainability, Pakistan can pave the way for a healthier and more prosperous future for its citizens.”