By Dr. Waseem Janjua and Qamar Naseem
On 24 May 2024, the Khyber Pakhtunkhwa (KP) government in Pakistan took a significant step by increasing the rate of Cess Development Tax and Provincial Excise Tax on tobacco to Rs. 50 per kilogram through the Finance Act 2024. These taxes, which will generate an estimated revenue of Rs. 9.5 billion annually, are poised to bring about substantial public health and economic benefits. However, the tobacco industry has initiated an anti-taxation campaign, necessitating an urgent need to educate farmers and the public on the benefits and implications of these taxes.
The Cess Development Tax and Provincial Excise Tax are critical tools in regulating the tobacco industry’s practices and promoting public health. The Cess Development Tax, applicable after the harvest, is paid by tobacco purchasers or the tobacco industry itself and NOT by the farmers. Since 1996, the rate had remained at a mere Rs. 3 per kilogram until the KP Finance Act of 2024 raised it to a maximum of Rs. 50 per kilogram (some cheaper varieties will be taxed at Rs 7.5/- and Rs 30/- per KG as well). Similarly, the Provincial Excise Tax, applicable at the Green Leaf Threshers (GLTs), will be paid by the GLT independent owners, or by the tobacco industry and NOT by the farmers. These measures ensure that no tobacco leaves the province without the payment of these taxes, thereby securing a reliable revenue stream for the government.
A key aspect of the Cess Development Tax is its allocation towards community development. By default, funds collected from through Cess are used for improving local amenities, including health and education. This directly benefits the residents of KP by providing better public services and infrastructure. However, a portion of the Cess is also used for paying the salaries of the Pakistan Tobacco Board employees, (these are federal employees and not provincial employees). There is a valid argument that the KP government should urge the Ministry of Food Security to take over the responsibility of these salaries, allowing 100% of the Cess revenue to be directed towards local development projects including farmers’ health, education, clean water and other similar projects.
It is crucial to emphasize that farmers are not liable to pay any of these taxes. The financial burden falls on the tobacco purchasers and the tobacco industry, and not on the individual farmers. This distinction is essential to clarify, as the tobacco industry’s anti-taxation campaign has attempted to mislead farmers into believing that they will be adversely affected by these tax increases. By educating farmers about the true nature of these taxes, we can mitigate the industry’s efforts to create unwarranted fear and resistance.
Moreover, it is notable that there has been no tax on Naswar, a traditional chewing tobacco widely used in the region. The recent imposition of a minimal tax of Rs. 5 per kilogram on Naswar tobacco grown in KP (Sun Cured Rustica), which constitutes less than 1% of the total Naswar tobacco production, is a step towards broader taxation measures. The majority of Naswar tobacco is grown in Punjab and imported by other provinces without any tax, highlighting a disparity that the government of Punjab should address by imposing similar taxes to generate additional revenue.
The tobacco industry’s opposition to these taxes stems from their desire to protect their profits at the expense of public health and economic development. By leveraging their influence and collaborating with local farmers, they are attempting to pressure the government into reversing these beneficial tax policies. However, the KP government’s stance should be commended and supported for its potential to improve public health outcomes and generate substantial revenue for development projects.
Increased tobacco taxation is a proven strategy for reducing tobacco consumption. Higher taxes lead to higher prices, which in turn discourage tobacco use, especially among price-sensitive groups such as youth and low-income individuals. This reduction in consumption translates into lower rates of tobacco-related illnesses and deaths, ultimately easing the burden on the healthcare system. The revenue generated from these taxes can be reinvested into the community, funding essential services and infrastructure that enhance the quality of life for all residents.
Furthermore, the additional revenue from the Cess Development Tax and Provincial Excise Tax can be used to support targeted public health initiatives, such as smoking cessation programs and educational campaigns about the dangers of tobacco use. These initiatives can further reduce tobacco consumption and its associated health risks, creating a healthier population and a more productive workforce.
It is also important to consider the broader economic benefits of these taxes. By generating significant revenue, the KP government can invest in infrastructure projects that create jobs and stimulate economic growth. Improved healthcare and education systems lead to a more skilled and healthy population, attracting businesses and fostering a more vibrant economy. In this way, the benefits of increased tobacco taxes extend far beyond public health, contributing to the overall development and prosperity of the region.
The KP government’s decision to increase the Cess Development Tax and Provincial Excise Tax on tobacco is a commendable step towards improving public health and generating vital revenue for community development. Despite the tobacco industry’s opposition, it is crucial to educate farmers and the general public about the true benefits of these taxes. By understanding that the financial burden falls on the tobacco industry and not on the farmers, we can dispel the myths propagated by the anti-taxation campaign. Embracing these taxes is a win-win situation for everyone, promoting a healthier population, a stronger economy, and a more equitable society.
Authors: Dr. Waseem Janjua and Qamar Naseem are tobacco control advocates.
