Cigarette tax hike in budget 2026–27 could generate Rs. 51b in additional revenue

ISLAMABAD: The Society for the Protection of the Rights of the Child (SPARC) has recommended a significant increase in Federal Excise Duty (FED) on cigarettes in the upcoming Federal Budget 2026–27, proposing higher taxes on both economy and premium brands along with a shift toward a unified tax structure.

Under the proposal, the suggested adjustment includes an increase of Rs. 35 per pack for economy cigarette brands and Rs. 21 per pack for premium brands.

According to SPARC estimates, the measures could generate around Rs. 51 billion in additional revenue, prevent approximately 369,000 youths from starting smoking, and reduce the total number of smokers in Pakistan by nearly 271,000.

SPARC Program Manager Dr Khalil Ahmad stated that tobacco consumption continues to place a heavy burden on Pakistan’s healthcare system, contributing to an estimated 192,000 deaths annually.

He noted that cigarette tax rates have remained unchanged since February 2023, causing a decline in the real value of tobacco taxation due to inflation, which has made cigarettes more affordable especially low-cost brands.

He warned that stagnant taxation policies are making cigarettes cheaper in real terms, increasing accessibility among children and young people.

He added that the real FED has declined by about 23% since 2023, while the tax share on top-tier brands has fallen from 47.4% to 41.7%, highlighting a widening policy gap that requires urgent correction.

The report also pointed out that Pakistan remains among the cheapest cigarette markets globally. A pack of 20 cigarettes costs about Int$3.46 in Pakistan, compared to Int$6.32 in the Eastern Mediterranean Region and Int$10.91 in South-East Asia, making cigarettes significantly cheaper and more accessible in the country.

Dr Ahmad emphasized that smoking imposes a massive economic burden, with estimated annual costs reaching Rs. 1,835 billion around 1.6% of GDP far exceeding revenue collected from tobacco taxes.

He said healthcare costs and productivity losses due to smoking-related illnesses amount to billions each year, making a strong case for inflation-adjusted taxation.

He further recommended an annual increase of around 35% on economy brands and 6.5% on premium brands to reduce the price gap and discourage youth initiation.

He also noted that independent estimates suggest illicit cigarette trade accounts for 33–34% of total consumption.

Referring to global obligations, he said Pakistan, as a signatory to the World Health Organization Framework Convention on Tobacco Control, is required to strengthen tobacco taxation under the MPOWER strategy, where tax increases are considered the most effective tool to reduce tobacco use.

SPARC concluded that implementing the proposed tax increase would align with international best practices, boost government revenue, and most importantly help protect children and young people from long-term addiction.