Smoke Screen: Estimating the Tax Pass-Through to Cigarette Prices in Pakistan

August 26, 2016

Preview Citation

Format: Chicago

Serhan Cevik. Smoke Screen: Estimating the Tax Pass-Through to Cigarette Prices in Pakistan, (USA: International Monetary Fund, 2016) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper estimates the magnitude and speed of tax pass-through across tobacco products at different price points in Pakistan by using a novel dataset of monthly observations on cigarette prices in 50 cities during the period 2004-2015. The pass-through of cigarette taxes to retail prices is found to occur within two months, but is mostly incomplete in magnitude. On average, a one-rupee tax increase is estimated to lead to an increase of only PRs 0.8 in retail cigarette prices. This is driven by the fact that tobacco manufacturers absorb a significant part of the tax increase. For the premium brand, however, I observe full passthrough, 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.

Subject: Consumer price indexes, Consumer prices, Consumption, Excises, National accounts, Prices, Taxes, Tobacco tax

Keywords: Brand, Cigarette price, Consumer price indexes, Consumer prices, Consumption, Cross-brand price subsidy, Excise taxes, Excises, Pass-through, Pass-through coefficient, Price, Price spectrum, Rate, Tax incidence, Tax pass-through, Tobacco products, Tobacco tax, WP

Publication Details

Pages:

14
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/179
Stock No:

WPIEA2016179
ISBN:

9781475530193
ISSN:

1018-5941

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