ISLAMABAD: The Federal Tax Ombudsman (FTO) has proposed to the Federal Board of Revenue (FBR) to substantially raise the Federal Excise Duty (FED) on cigarettes and also on beverages, ie, from 13 percent to 20 percent including soft drinks, energy drinks, packaged juices, sports drinks, sweetened coffee drinks, sweetened iced tea, and flavoured milk, etc, in the budget (2022-23).
According to the budget proposals of the FTO for 2022-23, uniform FED for all cigarette brands is proposed during the next fiscal year. The retail price on lower brands of cigarettes (market share 87.8 per cent) has been proposed to be raised from Rs33 to the price tier of Rs42.90 (excise tax share 48.2 per cent). The retail price of high-brands of cigarettes (market share 12.2 per cent) has been proposed to be increased from Rs104 to the price tier of Rs135.20 (excise tax share 64.2 per cent).
The FTO office said that the representatives of the Pakistan National Heart Association (PANAH) met the FTO and submitted that there is a direct and strong association between the consumption of sugar-sweetened beverages (SSBs) and obesity and non-communicable diseases (NCDs) such as diabetes, hypertension, cardiovascular illnesses. SSBs include any liquids that are sweetened with various forms of added sugars.
Multiple policy interventions have been identified by global health bodies like American Heart Association, WHO, and World Bank, which include but are not limited to increased taxation. Higher taxes, are advocated as potential policy tools to reduce the consumption directly.
Evidence from a number of countries has shown it to be effective strategies where a documented decrease in consumption of SSBs is seen and is expected to reduce the burden of NCDs. Examples include South Africa, Mexico, Chile and Saudi Arabia. These countries documented and implemented higher taxes on SSBs aiming to address reducing obesity and its related disease, and the policy has shown a positive effect on the health indications in these countries.
In the broader national interest, the federal government may increase the FED on the aerated waters, energy drinks containing added sugar or other sweetening matter or flavored from 13 per cent to 20 percent of the retail price. It is also proposed that at least 20 per cent FED may also be levied on SSBs including soft drinks, energy drinks, sport drinks, sweetened coffee drinks, sweetened iced tea, flavored milk etc. To achieve this, amendments are proposed in the entries at Sr Nos 5 and 6 in the First Schedule of the Federal Excise Act 2005, the FTO budget proposal added.
The FTO budget proposals further revealed that tobacco use is associated with more than 160,000 deaths every year in Pakistan. Pakistan National Heart Association also raised the issue of no tax raise on the cigarette sector since 2019. Cigarettes have become more affordable as tobacco taxes are low and have not increased since July 2019. The average excise tax rate is around 45 per cent of the retail price against the widely accepted benchmark of 70 per cent beyond 2022-23.
To fulfil its long-term commitment to using tax and price measures to reduce tobacco consumption, the government must continue reforming the tobacco tax system by implementing federal excise tax increases in order to make cigarettes progressively more expensive and less affordable. Raising excise taxes on cigarettes by 30 per cent would result in 200,000 fewer smokers and an increase of per cent 25 per cent in excise taxes.
The FTO budget proposal further said that cigarettes in Pakistan are taxed in two different price tiers: low-price and high-price. A specific excise tax (the Federal Excise Duty-FED) is levied on cigarettes sold in the country, which accounts for approximately 42.6 per cent and 59.8 per cent of the printed retail price of low-price and high-price brands, respectively, resulting in a significant excise tax burden difference between the two tiers.
Because low-taxed cigarettes represent the majority of the market (about 88 per cent), the average excise tax share is 44.7 per cent of the retail price, which is significantly lower than the widely accepted benchmark of 70 per cent of the retail price.
Uniform FED for all cigarette brands is proposed that would simplify the tax system; harmonizing excise taxation across all tobacco products. In addition, incorporating an automatic inflation adjustment mechanism in each tax year in the tax policy for taxation on cigarettes would cover the price inflation every year, the FTO’s budget proposal added.
Copyright Business Recorder, 2022