PIDE Study Urges Immediate Action on Fiscal Challenges Linked to Tobacco
The economic impact extends beyond the health sector, affecting households by diverting spending from essential needs to tobacco. To address this dual challenge, the study suggests that Pakistan has a strategic opportunity to increase revenue by imposing higher taxes on tobacco, currently the lowest in the region.
Karobar
Islamabad: In a pivotal revelation, a study conducted by the Pakistan Institute of Development Economics (PIDE) emphasizes the urgent need for Pakistan to address both fiscal challenges and the escalating public health crisis associated with tobacco consumption.
The economic implications of tobacco use are staggering, with the PIDE study revealing that in 2019, smoking-related diseases and deaths incurred total costs of Rs 615.07 billion ($3.85 billion), equivalent to 1.6 percent of the GDP. The World Health Organization (WHO) notes that 80% of the world’s 1.3 billion tobacco users reside in low- and middle-income countries, bearing the heaviest burden of tobacco-related illnesses.
Pakistan, currently navigating one of its most challenging economic periods, faces a balance of payments crisis, fiscal deficits, and external debt pressures. This not only strains the country’s financial resources but also hampers the government's ability to provide adequate health facilities. The PIDE report identifies the pervasive use of tobacco by around 20% of the population as one of the factors contributing to the rising health bill.
The imposition of such taxes aligns with WHO recommendations and can serve as a potent measure to curb tobacco consumption, subsequently reducing the health bill over time. The WHO Framework Convention on Tobacco Control emphasizes that "tobacco taxes are the most cost-effective means to reduce consumption, especially among youth and low-income groups."
This approach not only generates additional revenue but also contributes to a healthier population, fostering a more robust and economically sustainable future for Pakistan. According to the World Bank's latest report, 'Pakistan Development Update,' the country collected 0.5 percent of GDP in federal excise duty revenue in FY21. The report suggests a substantial revenue gain of 0.4 percent of GDP could be achieved by applying the current rate on premium cigarettes to standard cigarettes. It emphasizes that the true potential of revenue collection from the tobacco sector is yet to be fully tapped.
