Recipes and Health Benefits of Increased Tobacco Taxes – Reviews

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Raising tax revenue during the third wave of Covid-19 is a daunting task for policymakers in Pakistan. The federal government has few policy options to increase tax revenues in these difficult times. In this scenario, the Center for Policy and Social Development (SPDC) recently released a guidance note on “Modeling the Income and Health Implications of Tobacco Tax Policy in Pakistan” is a welcome document, which proposes some political choices for the 2021-2022 budget. describing the positive implications for tax revenues and health outcomes.

According to the guidance note, Pakistan faces a heavy burden from tobacco use and its implications for public health. With a prevalence rate of 19.1%, around 30 million adults (15 years and older) currently use tobacco in the country. The document cited previous research that said smoking killed around 163,360 people in Pakistan in 2017. The remainder of this article is based on the findings of the guidance note.

Like other countries, tobacco taxation is used as a policy tool for tobacco control in Pakistan. The Federal Excise Tax (FED) on cigarettes is widely treated like the tobacco tax in the country. It served a dual purpose of promoting public health and generating income. However, the structure and rates of the FED are subject to fluctuations. Changes in tax rate / structure are usually introduced when the federal budget is prepared for a new fiscal year.

Currently, a system of specific excise duties on cigarettes is in place. The FED rate is applied according to two price levels: low-cost brands and high-end brands. A brand is classified as low priced if the retail price printed on the package does not exceed Rs 5,960 per thousand cigarettes, while cigarettes with a retail price above this threshold are treated as a high brand. range or high priced. The FED rate on low-cost and high-end brands is Rs 1,650 and Rs 5,200 per thousand cigarettes respectively.

Taking into account the current retail prices, the rate of excise tax on low-cost and high-end brands is respectively 42.6% and 59.8% of the retail price, which shows a significant difference. of the excise tax between the two levels. Due to the large share of low-cost cigarettes in total consumption, the average FED rate is 45.4%, well below the World Health Organization (WHO) recommendation that the excise tax should represent at least 70% of the retail price.

The recent trend in the effective excise tax rate (ETR) shows a particular trend (Chart 1). ETR hit a reasonable rate of Rs1.93 per stick in 2016-17. However, it fell sharply in 2017-2018 due to the introduction of a three-tier excise duty structure – with a new tier for low-cost brands. The tax rate applicable to the new level has been reduced by 48%. Although the third tier was withdrawn in 2018-2019, the effective tariff rate remained low compared to 2016-2017.

Despite an increase in the excise tax rate in 2019-2020, the ETR on cigarettes only rebounded to Rs 1.94 per stick. Due to no change in the tax rate in 2020-2021, the ETR is still almost the same as it was in 2016-2017. As a result, cigarettes in Pakistan became more affordable in 2020-2021 compared to 2016-2017 due to a combination of two factors: no change in the rate of excise tax and increases in nominal income and l inflation of other goods.

A comparison of Pakistan with its neighboring country indicates that the price of the best-selling brand of a pack of 20 cigarettes was among the lowest in 2018 (Figure 2). The low rate of excise duty on cigarettes in Pakistan is one of the main factors contributing to the low prices of cigarettes.

In addition, Pakistan is ranked among the worst performing countries in the Tobacco Cigarette Tax Scoreboard with a score below one on a five-point scale. Due to the availability of cheap cigarettes, it is estimated that over 400,000 people will start smoking in 2020-2021.

For 2020-2021, the policy brief presents the result of two fiscal policy simulations, i.e. a 30% and 40% increase in the FED as well as an inflation of 6.8%. SPDC estimates show that a 30% increase in the EDF will lead to an increase of almost 29% in the average price of cigarettes. Likewise, a 40% increase in the EDF will lead to a more than 37% increase in the price of cigarettes. In both scenarios, FED will cross Rs50 per pack while the price will cross the Rs100 bar. In addition, the EDF will increase to at least 47% of the final consumer price.

Analysis shows that a 30% increase in the EDF rate will generate additional income of over Rs 19 billion. This amount includes the additional EDF (15.5 billion rupees) and the GST (3.6 billion rupees). Interestingly, a 40% increase in the FED rate will bring in slightly less additional revenue of Rs 14 billion due to a steeper drop in estimated cigarette consumption.

The increase in the EDF rate has a mixed impact on the tax / GDP ratio. For example, an increase of 30% would result in a marginal growth of 1.4% in the tax-to-GDP ratio, while an increase of 40% would result in a marginal decrease of 2%.

In contrast, both simulation results show an increase in per capita taxes on cigarettes. The increase in tax revenue per capita is relatively higher in simulation 1 – a 30% increase in the EDF rate. However, it is important to consider that tobacco taxation serves the dual purpose of promoting public health and generating income. Previous research has shown that the long-term benefits of reducing smoking outweigh the short-term economic losses.

Estimates of the simulated health implications of the 30% and 40% EDF rate increase indicate several public health benefits. For example, a 30% increase in the rate of DEF will likely encourage more than 219,000 smokers to quit. As the young population is more price sensitive, the same increase in the DEF rate will discourage nearly 700,000 future smokers. Simultaneously, it will also reduce the intensity of smoking in adult smokers by more than 6%. Due to a reduction in the number of smokers, increasing the rate of DEF will save more than 76,800 adult lives from smoking-related deaths. More importantly, 348,000 deaths can be prevented among future young smokers.

A 40% increase in the rate of DEF has relatively higher public health benefits by reducing the number of smokers, smoking intensity, and smoking-attributable deaths. For example, in the case of a 40% tax increase, the reduction in the number of adult smokers will be 158,000 more than a 30% increase. Likewise, the number of future smokers will decrease by 9.5% and 7.6% due to a tax increase of 40% and 30%, respectively.

Analysis shows that an increase in the rate of DEF of even 30% would result in 219,000 fewer smokers, a 3.8% reduction in smoking prevalence and 6.4% reduction in smoking intensity. in adults, and the aversion of 424,000 smoking-attributable deaths, including 78,000 current adults. smokers and 348,000 future young smokers. In addition, it will generate an additional income of 19 billion rupees, an increase of 14.4% from the base year collection. A 40% increase in the tax rate would have relatively higher public health benefits.

The results show that the proposed tobacco tax reform will greatly help the Pakistani government to meet its commitment to reduce smoking and its goal of reducing deaths from noncommunicable diseases (NCDs) in line with its promise to meet the targets. sustainable development and align its tobacco tax policies with global best practices. This would not only help reduce tobacco consumption in the country, but also help generate more income that can be used to promote public health.

Copyright recorder, 2021

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