Prime Minister Imran Khan has reportedly directed Ministry of Health Services, Regulations and Coordination to prepare some cogent proposals to levy additional taxes on tobacco products and beverages in the upcoming budget for fiscal year 2019-20.
Official sources told Business Recorder on Saturday that the government is planning to spend the additional revenue collected through taxes on the tobacco products and beverages on the newly launched health insurance scheme and other health-related projects.
"The ministry is working diligently to prepare viable proposals for additional taxes on the tobacco products to discourage their rising use, especially among the youth," the official said. He said the government intends to increase the tax on the tobacco products as the revenue through the sector has decreased sharply after the previous government introduced a third-tier of taxation on the cigarettes.
The ministry's proposal for the additional tax on the tobacco products would become part of the upcoming budget, if approved by the federal cabinet and given a go-ahead by the Ministry of Finance, the official said.
The economic cost of smoking in Pakistan amounts to Rs143.208 billion annually and it includes direct costs related to healthcare expenditures and indirect costs related to lost productivity due to early mortality and morbidity, revealed a report.
Industry experts believe that Pakistan can generate additional Rs205.9 billion from tobacco industry over next three years by introducing cogent tax reforms that would also lead to significant reduction in tobacco consumption and health cost in the country.
The experts said that additional tax revenue of about Rs205.9 billion over 3 years would be equivalent to an average annual increase in total tax revenue of about 51 percent (or about Rs32.3 billion per year).
The experts have also anticipated an increase in the excise tax share in the price from about 45.9 percent currently to 57.6 percent, somewhat closer to the 70 percent level recommended by the World Health Organisation.
Earlier in February this year, the federal cabinet rejected the proposal of the Health Ministry for imposition of 'sin tax' on consumption of tobacco and beverages owing to the legal and administrative lacunae in enforcement of the levy.
A special audit report on causes of decline in tax collection of tobacco sector has revealed that the cigarette manufacturing industry was involved in tax evasion of Rs33 billion, and recommended the withdrawal of third tier of the taxation system for the tobacco industry, which has resulted in the annual loss.
It suggested the government to increase Federal Excise Duty (FED) on annual basis to comply with the World Health Organisation (WHO) rules, as this will also result in higher revenues for the government. According to the WHO, minimum 70 percent of retail price is excise tax but in Pakistan 45.79 percent of retail price is excise tax.
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