Pakistan: IMF Finds Cigarette Taxes' Pass-through Incomplete

The pass-through of cigarette taxes to retail prices in Pakistan is mostly incomplete in magnitude, the International Monetary Fund (IMF) said on Monday. 
 

"On average, a one-rupee tax increase is estimated to lead to an increase of only Re0.8 in retail cigarette prices," the IMF said in working a paper estimating the magnitude and speed of tax pass-through across tobacco products at different price points in Pakistan
 

The paper used a dataset of monthly observations on cigarette prices in 50 cities during the period 2004-2015.
 

"This is driven by the fact that tobacco manufacturers absorb a significant part of the tax increase," the paper said. For the premium brand, however, the full pass-Through was, indicating possibilities of different demand elasticities across product tiers. 
 

These findings are likely to be attributable to competitive market pressures, especially at the budget end of the price spectrum, possibly stemming from changing consumption patterns with greater awareness of health risks as well as the impact of illicit domestic production. 
 

In Pakistan, a major tobacco-producing country, the tobacco sector accounts for about four percent of sales tax and excises collected at the federal level, but over 50 percent of total excises.
 

"About 40 percent of the male population and 9 percent of the female population smoke regularly, consuming over 82 billion cigarettes on an annual basis," said the paper. 
 

Pakistan's cigarette sector is dominated by two producers owned by multinational tobacco firms. 
 

The country, the paper said, has a minimum price of Rs44 per pack of 20 cigarettes and imposes a complex multi-tiered tax structure with thresholds on tobacco products. 
 

"In addition to the standard general sales tax, the Federal Board of Revenue levies a mix of ad valorem (percentage of product value) and specific (monetary value per quantity) excise taxes on factory-made cigarettes at different rates depending on price," it said. Enditem