Govt undecided on ‘sin tax’ on cigarettes

The government of Pakistan remains undecided on whether to impose a “sin tax” on cigarettes, as suggested by a special Senate committee, due to opposition by the Federal Board of Revenue (FBR).

The Special Committee on Causes of Decline in Tax Collection of Tobacco Sector, headed by Senator Kalsoom Parveen, has recommended a systematic increase in federal excise duty (FED) on cigarettes every year to comply with the World Health Organisation (WHO)’s Framework Convention on Tobacco Control (FCTC) and increase

government revenues.

According to Parveen: “There is some room for the government to raise the FED without disturbing the fiscal inflows, as the two multinational tobacco companies produced a gross turnover of Rs173bn in the year 2018; that is 22% higher compared to the 2017.”

The committee also suggested a comprehensive strategy to stop the smuggling of international brands and the production of non-duty paid and counterfeit cigarettes within the country.

In the report, Parveen said that all the stakeholders – the Pakistan National Heart Association, tobacco growers, multinational companies, local manufacturers, the ministries of commerce and national health services (NHS), and commercial dealers – should be taken on board by the FBR in revising taxes on the tobacco sector.

In the Federal Health Levy Bill presented to the cabinet for approval, the ministry of NHS also suggested a “sin tax” on cigarettes, on the grounds that cigarettes cause some 108,800 fatalities every year in Pakistan – almost 300 deaths per day.

An official from the ministry said that similar taxes and levies are called a “sin tax”, and have been imposed in around 45 countries, including the US, where $1.50 is charged on every pack of cigarettes.

The UK charges 40p per litre on sugary beverages in the form of “sin tax”, and Thailand and India also have similar taxes earmarked for healthcare services.

A spokesperson from the FBR, meanwhile said that higher taxes would increase illicit trade.

The FBR’s Hamid Ateq said: “A sin tax would eventually lead to rise in smuggling, and growth in the sale of cheap, non-tax paying cigarette sector in the country.”

He said higher taxes would lead to a decline in sales of legitimate cigarettes.