Experts for annual tobacco tax adjustments, climate levy & stronger regulation to address health, environmental costs

ISLAMABAD, Jun 23 (APP):Economists, public health and environmental experts on Tuesday called upon the government to end freeze on tobacco taxation, introduce inflation-adjusted annual increases in cigarette taxes, and consider a climate tax on the tobacco industry, warning that continued inaction is imposing high costs on Pakistan’s health system, economy and environment.

The recommendations were made during a policy dialogue titled “The Cost of Inaction: Tobacco Tax Freeze in Pakistan’s 2026-27 Budget,” jointly organized by the Sustainable Development Policy Institute (SDPI) and the Social Policy and Development Centre (SPDC) here, said a press release.

Dr Irfan Chatha, Research Fellow at SDPI, said tobacco taxation should be viewed primarily as a public health measure rather than merely a revenue-generating tool. He noted that many countries impose significantly higher tobacco taxes than Pakistan, citing Vietnam, where tobacco taxes account for around 60 percent of the retail price.

He warned that the health burden caused by tobacco consumption was placing increasing pressure on public health budgets and stressed the need for stronger taxation policies to discourage smoking and reduce long-term healthcare expenditures.

Presenting SPDC’s analysis, Asif Iqbal, Managing Director of SPDC, said no changes had been made in the Federal Excise Duty (FED) on cigarettes since 2023 despite Pakistan’s fiscal challenges. He argued that it had negative implications for both public health and revenue generation.

He explained that because cigarette taxes are imposed as specific taxes rather than ad valorem taxes, inflation has significantly eroded their real value over the past three years. According to SPDC estimates, the real tax burden on economy cigarette brands has declined by around Rs 26 per pack, while the tax burden on premium brands has fallen by approximately Rs 84 per pack after adjusting for inflation, he said.

Iqbal said that while cigarette prices have increased nominally, much of the gain has accrued to tobacco companies rather than the government. He argued that freezing of taxes effectively subsidizes both tobacco manufacturers and smokers by making cigarettes more affordable in real terms.

Highlighting policy options, he recommended that the government institutionalize annual inflation-based adjustments in tobacco taxes. He also called for gradually increasing the tax burden on economy cigarette brands to reduce consumer shifting from premium to cheaper products and urged parliament to consider at least a 21 percent increase in tobacco taxes before the Finance Bill is finalized. According to SPDC’s modelling, he said, a substantial tax increase could reduce the number of smokers, prevent future tobacco-related deaths and generate additional government revenue.

Waseem Iftikhar Janjua, Visiting Researcher at SDPI, said tobacco causes environmental damage throughout its entire life cycle, from cultivation to disposal. Presenting findings from SDPI’s research, he said tobacco cultivation contributes to land degradation, deforestation and excessive pesticide use, while curing tobacco leaves requires significant quantities of wood and fossil fuels. Manufacturing, transportation, as well as consumption further add to greenhouse gas emissions and pollution.

Janjua stated that producing a single cigarette consumes approximately 3.7 litres of water and generates around 14 grams of carbon dioxide emissions. He noted that tobacco production worldwide destroys an estimated 3.3 million trees annually and consumes vast amounts of energy that could otherwise support productive sectors.

He said tobacco filters are a major source of microplastic pollution, while cigarette butts contaminate water bodies and soil with toxic chemicals and heavy metals. Referring to Pakistan’s environmental challenges, he estimated that tobacco-related waste and environmental degradation impose billions of rupees in annual costs.

Calling for greater accountability, Janjua urged authorities to require the tobacco industry to publicly report emissions and pollution data and comply fully with environmental regulations. He also proposed the introduction of a climate tax on the tobacco industry in the next federal budget, arguing that polluters should bear the environmental costs associated with their activities.

Waseem Saleem, representative of the World Health Organization (WHO) Pakistan, emphasized that the primary purpose of tobacco taxation is to reduce consumption and improve public health outcomes.

Rejecting the industry’s claim that higher taxes reduce government revenues, he said evidence from Pakistan and other countries shows that significant tax increases lower cigarette consumption while increasing revenue collection. He noted that despite previous tax hikes, tobacco tax revenues have remained strong, while Pakistan continues to lag behind regional countries in tobacco tax collection and pricing policies.

Saleem said affordability remains a key challenge, as rising incomes and population growth can offset the impact of static tax rates. He also challenged the industry’s argument linking higher taxes with illicit trade, noting that experiences from countries such as Bangladesh and Sri Lanka demonstrate that illicit trade is more closely related to enforcement and tax administration than tax rates themselves. He recommended strengthening enforcement mechanisms alongside tax reforms and allocating additional resources to curb illicit cigarette trade.

Dr Nadia Tahir, Senior Researcher at the Prime Minister’s Office, stressed the need for a comprehensive and evidence-based approach to tobacco control.

She observed that governments make decisions based on policy choices rather than narratives alone and said advocates must develop a stronger and more holistic case that addresses the industry’s claims regarding tax revenues, employment and livelihoods.

Dr Tahir acknowledged the long-standing research efforts of SDPI and SPDC on tobacco control and called for promoting successful policy interventions and strengthening engagement with government institutions and parliamentarians.

She also highlighted the importance of addressing regulatory compliance issues through mechanisms such as a single-window system under NAFSA and described the environmental impact of tobacco products as an emerging area that warrants further research and policy attention.