Tax Hike To Deter Smokers

Globally, over 8 million people die from the consumption of tobacco products each year, of which 7 million succumb to them from first-hand consumption, while 1.2 million from second-hand smoke exposure. According to data from the National Health Education, Information and Communication Centre, each year more than 27,000 people in Nepal breathe their last due to tobacco consumption, accounting for 11 per cent of the total number of annual deaths. Tobacco consumption remains one of the leading causes of preventable deaths in the country, as it increases the risk of lung and oral cancer, tuberculosis, and chronic respiratory illness. It also raises the chance of heart disease, high blood pressure and stroke. 

Experts have demanded a rise in cigarette excise duty by 55 per cent in the upcoming budget of 2026/27, and recommended continuing annual tax increase above the inflation rate in all tobacco products. This is expected to increase government revenue by 11 to 12 billion and can act as a major deterrent for consumption among the low-income group. Nepal is expected to generate revenue of Rs. 35 billion from excise duty in the current fiscal year. However, tobacco-related illnesses cost the country an estimated Rs. 45 billion annually through healthcare expenditures and productivity losses, which is equivalent to 1.2 per cent of the GDP. 

Experts suggest the revenue generated from tobacco, also termed as sin tax, could be mobilised in the health insurance programme, which is on the verge of collapse owing to a lack of funds. Likewise, the generated revenues could be used to strengthen the healthcare system, education, and poverty alleviation. However, generating revenue from tobacco products and using it in healthcare sounds paradoxical. Increasing tax on tobacco products is one of the most effective interventions of the state to discourage smoking and the use of other tobacco products, improve public health and generate revenue. Tobacco taxation in Nepal remains the lowest in South Asia at around 35.7 per cent of the retail price. This is far below the 75 per cent level recommended by the World Bank and the World Health Organisation.

Consumption of tobacco and tobacco products takes a heavy economic toll on the low-income group; unfortunately, the low-income people are the ones who consume these products the most. It creates a vicious cycle of poverty by draining income, increasing medical expenses that could be used on children's education, nutrition and investment. Tax hike is expected to reduce consumption among the low-income group and youths.

On February 6, 2025, the Ministry of Health and Population approved a new tobacco packaging guideline requiring 100 per cent pictorial health warnings on tobacco products, expecting it to work as a deterrent. Apart from this, the government needs to apply age restrictions for buying and selling of those products, a ban on advertisement on any means of communication, and a prohibition on smoking in public places. Likewise, the school curriculum should include more awareness lessons on the harmful effects of the consumption of those products.