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ISLAMABAD: The government is in the process of finalising budget proposals to provide tax benefit/reduction to three products, which are considered not good for health to outright injurious, ie, beverages (sugary drinks), cigarettes, and tea in the coming budget (2021-22).

It is reliably learnt that the budget makers are seriously considering these proposals for the upcoming Finance Bill (2021-22), which are related to the items bad for the health of the general public.

The proposals are not finalised, but under active consideration for the next fiscal year.

The tax relief/benefit or reduction in taxes for beverages (sugary drinks), cigarettes, and tea would have revenue implications to the tune of billions.

The first proposal under consideration is to reduce the rate of the Federal Excise Duty (FED) on sugary drinks from 13 percent to 12 percent.

The second proposal is to revert back to a three-tier system of the FED on cigarettes to replace the existing two slabs of the FED on this item.

The third proposal is to exclude tea from the Third Schedule of the Sales Tax Act 1990 and charge only three percent value addition sales tax at the import of tea by commercial importers.

Sources strictly on the condition of anonymity told Business Recorder that the beverage industry is pressurising the government to reduce the rate of the FED on sugary drinks from 13 to 12 percent. Two years ago, the rate of the FED on sugary drinks was increased from 11.5 percent to 13 percent.

If the government cut the FED on beverages from 13 to 12 percent, it would reduce government revenue by Rs6-7 billion per annum.

The industry has informed the government high-ups that the volumes of sugary drinks consumption have been decreased due to the higher rates of the FED on beverages.

The reduction in the FED from 13 to 12 percent would increase the FED collection in 2021-22.

The FED increase, rising input costs and slow economy has impacted the industry. The beverage industry has conveyed to the government that the companies would provide relief to the consumers after reduction in the FED on beverages.

Reliable experts were of the view that the consumption of the sugary drinks has not been decreased merely due to the FED on these products, but the Covid situation and closure of hotels, restaurants and other public/tourist places has also resulted in less consumption.

In a country where every one person is diabetic out of four, the reduction in the FED from 13 to 12 percent would definitely increase the health bill of the country.

The government is considering this proposal of reduction in the FED on sugary drinks from 13 to 12 percent at a time when the proposal of imposing 10 percent "Health Levy" or "Sin Tax" was repeatedly discussed in the past.

It is also learnt that the government may consider the proposal of the documented cigarette industry to replace the existing two-tier system with the three FED slabs for cigarettes in the coming budget (2021-22).

The proposal is under consideration to check the undocumented sector and provide level-playing field to all participants.

Independent experts opined that the documentation is done through enforcement and administrative measures and not through the reduction in taxes. In case of the tobacco sector, enforcement is required to control illicit, no-duty paid and smuggled cigarettes and not to go back to the old three-tier system of the FED on cigarettes.

Sources said that the government is seriously considering excluding tea from the Third Schedule of the Sales Tax Act 1990.

Copyright Business Recorder, 2021

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