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Ministry asks FBR to cut three-tier taxation on tobacco products

Ministry asks FBR to cut three-tier taxation on tobacco products

ISLAMABAD: The Ministry of National Health Services, Regulations & Coordination has requested the Federal Board of Revenue (FBR) to slash three-tier taxation on tobacco products.

Capt (R) Zahid Saeed, Secretary, Ministry of NHSR&C, in a letter written to FBR Chairperson Ms Rukhsana Yasmin, dated July 5, 2018, has referred to the Prime Minister Secretariat’s letter in which the health ministry has been asked to look into the complaint of anti-tobacco groups regarding reduction in the Federal Excise Duty on tobacco products by the FBR.

Saeed has mentioned that tobacco use is a cause of death of around 160,100 Pakistanis every year. Almost 23.9 million adults currently use tobacco in any form. Moreover, the economic cost of smoking in Pakistan amounts to 143.208 billion. The letter says that as signatory to framework convention on Tobacco control Pakistan has to implement tax and price policies on tobacco products as a way to reduce tobacco consumption.

According to WHO tobacco excise taxes should account at least 70% of the retail price for tobacco products. “Moreover, Pakistan is obligated to achieve the targets set for sustainable development goals under 3.4. Pakistan has to reduce one third premature mortality from non-communicable diseases through prevention and treatment and promote mental health and well-being by 2030. Tobacco use is the leading preventable risk factor for NCD.

Tobacco taxes that translate into price increases are considered the single most effective option for reducing tobacco use and increasing revenues. Higher tobacco taxes save money by reducing tobacco-related health care costs. According to WHO study a 10 % increase in tobacco prices will reduce consumption up to 5% to 8% in low and middle income countries.

It is pertinent to mention that prior to federal budget 2017-18, this ministry proposed to tax the lower slab/tier of all brands of cigarettes at44 per pack of 20 cigarettes. In addition it was also requested to implement tracking and tracing system on priority basis to curb illicit trade in tobacco products. The proposal was based on a study according to which a uniform specific excise tax that accounts for Rs44/pack could reduce number of smokers by 13.2 %, increase tax revenues by Rs39.5 billion leading to reduction of 0.65 million premature deaths caused by smoking among current smokers while also preventing 2.55 million youth from taking up smoking. Despite the proposal, a new slab/tier with reduction in FED ( Rs 16) was created in the Finance Act, 2017. Resultantly, the prices of the most sold brands reduced from Rs75 to Rs48.

On 24th January, 2018, this ministry requested the FBR/ministry of finance to withdraw slab/tier immediately because it resulted in increasing production of cigarettes hence increasing tobacco-related health care costs and deaths in the country. In Finance Act 2018, the existing 3-tier structure was continued, but FED on all three tiers was increased from Rs16 to Rs17.08; Rs33.40 to Rs35.52 and Rs74.80 to Rs79.40 respectively.

The introduction of 3rd Tier resulted in increasing production of cigarettes hence increasing tobacco-related health care costs and deaths in the country. According to Pakistan Economic Survey 2017-18, cigarette production during July 2017-February 2018 increased by 77% compared to production in previous year during the same period. This increase on local cigarette production will definitely increase cigarette consumption on the country as these cigarettes will be sold locally. Resultantly, tobacco related deaths in the country will be increased in addition to increase in tobacco related health care costs.