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Tobacco industry succeeds in getting low tax rate

Updated June 05, 2016

ISLAMABAD: Despite efforts by the national health services (NHS) ministry to increase taxation on cigarettes, the tobacco industry has succeeded in ensuring that there is only a small increase in prices.

Members of the civil society have declared the increase in taxes an eye wash, and claimed that the increase is so minute that the industry may not even pass it on to consumers.

An official of the NHS ministry said that the ministry wrote to the finance minister in March, recommending that prices of tobacco products be increased in order to discourage smoking, and this would be in the interest of both the exchequer and the country’s youth.


The increase is so minor that the industry may not even pass it on to consumers


“There are two slabs of cigarette products – upper and lower slabs. Products with a retail price lower than Rs72 exclusive of GST are ranked within the lower slab, and products with a retail price higher than Rs72 are ranked within the upper slab,” he said.

“There was Rs28.40 tax on a packet of 20 cigarettes ranked in the lower slab. As 80pc of users, particularly the youth, smoke cigarettes in the lower slab, we suggested that the tax be increased to Rs44. We did not give recommendations for the upper slab, because only 20pc of consumers smoke those cigarettes, which are taxed Rs63.10.”

He added: “We also quoted a study that said that implementing the ministry’s suggestion would cause 13pc of smokers to quit, and lead to government revenue increasing by Rs40 billion.”

The official said the ministry was “shocked” by the budget announcement.

“In the proposed budget for 2016-17, the tax on the lower slab has been increased by Rs4.58, and even that increase will be implemented in two phases.

“In the first phase, the tax will be increased to Rs30.68 on July 1, and on December 1 it will be increased to Rs32.98,” he said.

Similarly, the tax on the “upper slab” has been increased by Rs11, to be implemented in two phases.

“In the first phase it will increase to Rs68.72, and then on December 1, tax will increase to Rs74.10,” the official said.

The official also criticised the government’s decision to change the upper limit for the lower slab.

“Previously there was a Rs72 upper limit for the lower slab, but this will be increased to Rs80 on July 1 and then to Rs88 on December 1.”

He explained: “Those cigarette brands with retail prices in the 80s will pay Rs32.98 in tax instead of Rs74.10. in other words, the tobacco industry has benefitted.”

Nadeem Iqbal, the head of an NGO called The Network, said the taxes on tobacco products were nothing but an eye wash.

“Smoking is a sin, so instead of Federal Excise Duty (FED) – which is imposed on consumption – a sin tax should be imposed on tobacco products.

“The minister of finance, Ishaq Dar, claimed that the tax has been increased with an aim to discourage smoking, but there was just a minor increase in tax so the tobacco industry might not pass it to consumers,” he said.

“The World Health Organization (WHO) has recommended over 70pc tax on tobacco products but in Pakistan there is only 61pc tax, even after the current increase,” he said.

A ministry official also said the tax increase is too minor to discourage smoking amongst the youth.

“We also suggested that all the exemptions of tobacco taxes provided to the navy, the president, the president of Azad Kashmir and the governors of provinces and guests be removed, but apparently there is no mention of this in the budget document,” the ministry official added.

Published in Dawn, June 5th, 2016