Global lender recommends tax policy reforms

ISLAMABAD: The International Monetary Fund (IMF) has recommended short-term and long-term tax policy reforms and excise duty on non-essential/luxury items including cigarettes to raise revenue and improve public health.

The global lender has given a set of recommendation and taxing non-essential items including cigarettes has received appreciation by health advocates and experts.

“Further reform could focus on harmonizing rates across items (such as locally and foreign manufactured cigarettes) and broaden the base (for example, to include e-cigarettes),” IMF report added.

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“This is a crucial time for the government to fix economic problems and implement the IMF recommendation,” said Professor Muhammad Zaman, head of Zaman Research Centre at Quaid-i-Azam University (QAU).

He said the IMF’s Technical Assistance Report titled “Pakistan Tax Policy Diagnostic and Reform Options” had referred to a phenomenal study on that subject conducted by Capital Calling, an Islamabad-based think tank, which said the cigarette consumption had decreased due to increase in prices. He said there was a need to bring into account the cost of morbidity and mortality that smoking inflicted on the society. “Smoking is injurious to health regardless of the cigarette brand,” he said.

He pointed to critical flaws within Pakistan’s tax system particularly the cigarette industry, which have allegedly caused an estimated loss of Rs567 billion during last seven years, as revealed by the Sustainable Development Policy Institute (SDPI).

The study further exposed the introduction of a three-tier excise duty structure in 2017, which prioritized revenue collection over public health considerations. However, subsequent analysis proved this approach to be ineffective and misleading in revenue generation.

The SDPI research highlighting global best practices and how high and middle-income countries have successfully used high cigarette taxes to reduce consumption and boost government revenues.

Pakistan, however, lacks a coherent strategy in utilizing cigarette taxation and pricing as a public health tool.

Dr Hassan Shehzad from the International Islamic University Islamabad (IIUI) echoed sentiments from the World Health Organisation (WHO), stressing the need to shield tobacco tax policies from vested interests of cigarette companies to ensure effective development, implementation, and enforcement of public health initiatives.

Copyright Business Recorder, 2024