The Cost of Cigarette Tax Rate Freeze in Pakistan

This Policy Brief was developed by Social Policy and Development Centre (SPDC) in Pakistan. The policy brief assesses the impact of maintaining the same Federal Excise Duty (FED) tax rates since February 2023, following a period of tax increases. The researchers find that from March 2023 to March 2025, real tax rates have effectively decreased as their real value has decreased. For low-priced brands, for example, the inflation-adjusted tax rate reduced from Rs 101 to Rs 84 per pack. Similarly, the inflation adjusted price of the most sold brand also decreased, from Rs 221 to Rs 200 per pack, while the average FED share of retail price decreased from 56% to 54%. The findings also show that adjusting the tax rates for inflation in fiscal year 2024-25 and 2025-26 would have reduced cigarette consumption by 3%, with 209,000 fewer smokers and more than 215,000 premature deaths averted. At the same time, tax revenue would have been Rs 97 billion higher compared to current revenues. The policy brief concludes with recommendations for policy makers to regularly adjust the FED to ensure they remain effective in reducing consumption and raising revenues.