Economics of Tobacco Taxation and Consumption in Pakistan

Tobacco taxation is a major concern of health and tax policies in Pakistan. Although the tobacco industry thrives on 22 million active tobacco consumers and 100,000 premature deaths in Pakistan, it is still attractive because of a tax tag worth USD 1 billion. Nevertheless, tobacco taxation has largely been an under-researched area; thus, evidence-based policy making is lacking. This report presents an economic analysis of tobacco taxation and consumption in Pakistan and provides three distinct but interconnected analyses: 1. A political economy analysis of tobacco taxation and administration was conducted through qualitative analysis of in-depth interviews with tax, health and other knowledgeable informants to understand its functioning, or lack of it. 2. Using micro level data, HIICS 2015-2016, the study estimated price and income elasticities and conducted a heterogeneous analysis with respect to income, province and region. These estimates advance the understanding of tobacco tax changes’ impact on different populations, and also provide input for the simulation modelling. 3. The effect of tax changes on various outcomes vis-à-vis demand for cigarettes, calculated through simulation modelling, provides a basis for recommending policies related to tax structure and administrative reforms to the Federal Board of Revenue.