Heavy tobacco taxes urged ahead of budget 2026-27

Speakers at a policy seminar called for stronger and more consistent tobacco taxation, elimination of two-tier tax structure, and targeted measures to curb youth smoking, as part of recommendations for the Federal Budget 2026–27.

The policy dialogue, titled: “Strengthening Tobacco Taxation for Public Health and Fiscal Gains: Preparing for the 2026-27 Budget, was organized by Sustainable Development Policy Institute (SDPI) here on Thursday.

Opening the discussion, Syed Ali Wasif Naqvi, Senior Research Associate at SDPI, emphasized that strengthening tobacco taxation is among the most effective evidence-based tools to improve public health while boosting domestic revenues. He highlighted analytical findings, which show that even a one-percentage-point reduction in smoking prevalence could recover around Rs294 billion in economic losses and generate over Rs103 billion in additional tax revenue.

He noted that Pakistan, as a lower-middle-income country, lags behind optimal tobacco taxation levels. Attributing stagnant tax rates partly to industry influence, he called for a comprehensive review of the two-tier system to prevent manipulation and improve regulatory effectiveness.

Dr Sajid Amin Javed, SDPI Deputy Executive Director, described tobacco taxation a “win-win” policy with benefits for revenue generation, public health, and economic stability. He suggested the formation of a working group of think tanks to initiate dialogue, conduct awareness campaigns, and engage educational institutions on the health risks of tobacco.

He further suggested that commonly consumed cigarette brands should face higher taxation, while revenues generated should be earmarked for health sector improvements. Highlighting youth vulnerability, he proposed the mapping of youth consumption trends and imposing higher taxes on products popular among young people to limit affordability. He also suggested integrating tobacco awareness into government initiatives such as youth development programmes and strengthening evidence-based counterarguments to industry claims regarding taxation impacts.

Waseem Iftikhar Janjua, SDPI Senior Advisor, focused on structural reforms, calling the existing two-tier taxation system inequitable and counterproductive. He noted that the tax gap between premium and economy brands encourages smokers to switch to cheaper options instead of quitting.

He suggested a progressive increase in taxes on lower-tier brands while narrowing the gap with premium products to move toward a single-tier system. He also urged the government to adopt automatic annual excise increases that outpace inflation and GDP growth with a three-to-five-year roadmap for reform.

Citing global benchmarks under the World Health Organization Framework Convention on Tobacco Control, he noted that Pakistan’s tax share on cigarette retail price remains below the recommended 70 per cent. He also called for limiting tobacco industry influence in policymaking and urged international financial institutions such as the IMF and World Bank to support stricter taxation policies.

Dr Ashar Malik of Aga Khan University stressed that tobacco products should not be treated as conventional economic goods due to their severe health consequences.

He underscored taxation as the single most effective global strategy to reduce tobacco consumption but warned that regulatory gaps allow alternative tobacco products, particularly smokeless forms, to escape adequate taxation.

He recommended expanding taxation and legislation to include all forms of tobacco, alongside improved early diagnosis mechanisms for tobacco-related diseases, including lung and oral cancers.

Dr. Irfan Chatha, SDPI Research Fellow, highlighted that taxation alone is insufficient without complementary enforcement and policy alignment.

Discussing about the persistent consumption level of around 80 billion cigarette sticks annually, he stressed the need for a broader strategy combining taxation, enforcement against illicit trade, and institutional coordination.

Identifying the structural gap between federal taxation powers and provincial responsibility for health after the 18th Amendment, he suggested that tobacco taxation should be reframed not only as a revenue tool but also as a core public health intervention. He urged policymakers to clearly define priorities between preventing new smokers and reducing existing consumption.