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Health Ministry suggests a further tax slap on tobacco companies

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In an attempt to counter growing health risks and to give some boost to state revenues, the Ministry of National Health Services, Regulations and Coordination has rolled out its suggestions to the government to increase taxes on tobacco companies in the upcoming budget for fiscal year 2018-19.

The ministry has inferred that not only the tobacco companies have benefited out of the reduction in cigarette prices, but pharmaceutical firms have also got heavy revenues by treating the consumers harmed by cigarette smoking, which is a consequential benefit.

Last year, the Minister for Health Saira Afzal Tarar had written separate letters to the ministry of finance and Special Assistant to Prime Minister on Revenue. The letters suggested implementing tax and pricing policies on tobacco products referring to the Framework Convention on Tobacco Control (FCTC). The proposal was based on a research study on tobacco taxes in Pakistan conducted jointly by the FBR, World Bank, University of Toronto, Johns Hopkins University, University of Illinois, Chicago and Beaconhouse National University.

In third slab, introduced by the government, the tax was reduced to Rs. 16 with the retail price below Rs. 58.5 This initiative, people believe, has pushed up the number of smokers and production of cigarettes in the country.

According to the letter, increase of Rs. 44 per pack on 20 lower slab brands was suggested for the budget 2017-18. Spokesperson NHS Sajid Hussain Shah had said that ministry had proposed taxation on cigarettes for the better health of people and discourage the tobacco consumption. He said that as the matter is sub-judice, no comments could be made.

In the budget for 2017-18, as the ministry had asked for an increase in cigarette prices with higher taxes, the government instead cut the taxes by introducing a third slab of federal excise duty. In Pakistan, cigarette excise duties have been applied in two tiers before 2017. The first tier was for the cigarette, which was expensive. The tax tier was based on the price of the cigarette; the brand with price more than Rs. 88 was paying Federal Excise Duty (FED) of Rs. 74 per pack, in second slab the brand less than Rs. 88 was paying Rs. 32.8 FED.

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In third slab, introduced by the government, the tax was reduced to Rs. 16 with the retail price below Rs. 58.5 This initiative, people believe, has pushed up the number of smokers and production of cigarettes in the country. Taxes on tobacco are considered the most effective way of bringing down its demand and boosting government revenues. These also help save money through lower health care costs.

The ministry has inferred that not only the tobacco companies have benefited out of the reduction in cigarette prices, but pharmaceutical firms have also got heavy revenues by treating the consumers harmed by cigarette smoking, which is a consequential benefit.

According to a study of the World Health Organisation, a 10% increase in tobacco prices will restrict its consumption by up to 8% in low and middle-income countries. The Ministry of Health, in a letter to the Federal Board of Revenue (FBR), recalled that prior to the FY18 budget, the ministry had proposed a tax of Rs 44 per pack on the lower slab of all brands of cigarettes.

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According to the study, a uniform excise tax of Rs 44 per pack of 20 cigarettes could reduce the number of smokers by 13.2%, increase tax revenues by Rs39.5 billion, reduce by 0.65 million premature deaths caused by smoking and prevent 2.55 million youth from starting smoking. Apart from these, the tax measure will help curb illicit trade in tobacco products.

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