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No sin tax on cigarettes: A win for the tobacco lobbyists?

The cabinet-approved decision of imposing a health tax on cigarettes to generate revenue demarcated for healthcare developments was not included in the budget 2019-20. Speculations reveal that the decision was opposed by FBR chairman, while others term it a manifestation of the influence yielded by tobacco lobbyists.

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News Desk |

The federal government has dismissed the health tax decision put forward by the cabinet, which advocated imposing a health tax on cigarettes in the budget put forward for the year 2019-20 in order to raise revenues to be allocated to the health sector.

Health activists across the country were disappointed that despite the approval of the federal cabinet to impose a health tax on cigarettes and fizzy drinks, the clause was not added to the proposed budget.

On 28th May, a meeting of the cabinet led by Prime Minister Imran Khan presented a briefing of the budget strategy paper 2019-20 and the decision to impose health tax on cigarettes at the rate of Rs10 per pack containing 20 cigarettes was announced. It was unanimously agreed upon to make the health tax a clause in the Finance bill for the fiscal year 2019.

Zaidi pointed out that the withdrawal of the third tier of the federal excise duty (FED), imposed by the former PML-N government, will increase the yearly revenue generation from the tobacco industry to Rs150 billion.

Media speculations reveal that a group of tobacco lobbyists have been working to influence the decision of imposing a health tax, while more substantial reports state that the Federal Board of Revenue (FBR) opposed this decision in order to increase revenue from the tobacco industry.

Health Levy Opposed by FBR

Despite the approval of the Federal Cabinet and Prime Minister Imran Khan, the decision was withdrawn after the Federal Board of Revenue opposed the decision, and proposed the withdrawal of a third tier of tax imposed on cigarettes in order to boost revenue generation.

Media reports reveal that the Chairman of the Federal Board of Revenue (FBR) Shabbar Zaidi, highlighted that the yearly revenue generation from cigarette producers is expected to be around Rs114 billion. Zaidi pointed out that the withdrawal of the third tier of the federal excise duty (FED), imposed by the former PML-N government, will increase the yearly revenue generation from the tobacco industry to Rs150 billion.

Read more: Health Ministry suggests a further tax slap on tobacco companies

In 2016, the revenue generation from cigarette manufacturers was Rs114 billion, however, after the PML-N government imposed a third tier of taxation, the revenue dropped to Rs80 billion in 2017.

The proposal put forward by the FBR Chairman was strongly opposed by the Ministry of Health, and the officials argued that the decision had already been approved by the cabinet, however, they did not succeed in making the health levy a clause of the Finance Bill for this year. Speculations reveal that a certain lobby has influenced the decision and created obstacles in the approval of the health tax as part of the finance bill 2019.

Health Ministry & Cabinet Disappointed

During the cabinet meeting held on 28th May, the PTI-led government had held a review presentation of the Finance Division on the Budget strategy paper and approved a medium-term macroeconomic framework. The cabinet had unanimously agreed to impose a health levy of Rs10 on each 20-cigarette pack, along with Rs1 per 250ml bottle for fizzy drinks.

The influence of the powerful tobacco lobby, spearheaded by multi-national brands such as Phillip Morris International Inc. and British American Tobacco Plc., has long been debated across media platforms in the country.

The cabinet members had agreed that the revenues collection by imposing this health tax would be demarcated for ushering infrastructural and technological developments across the health sector, and would be dealt separately from the budget allocations for the public health industry.

It was agreed upon that the addition of the health tax to the finance bill would also include strategies to undermine the illegal production and trade of cigarettes and other tobacco-based products.

On 3rd June, the Cabinet Division dispatched a letter to the Finance Secretary, Revenue Secretary and the National Health Services amongst other officials, urging to implement the health tax within a week, as per Rule 24 of the Rules of Business 1973 in collaboration with relevant ministries and officials.

Read more: ‘Gunah’ Tax: should that be imposed?

The Cabinet Division awaits an implementation report of the receipt of the decisions within a week’s period.

Win for the Tobacco Lobby?

Dawar Butt, policy analyst and professor at LUMS, observed that the rejection of the health tax proposal is a “significant success for the Tobacco lobby”.

Butt tweeted, “In a rather significant success for the Tobacco lobby, the PTI government is not imposing its own proposal of ‘Health tax’ of PKR 10/pack.”

Lamenting the government’s decision to ignore such a widely-welcomed and applauded healthcare proposal, Butt noted, “If even this small tax was imposed, it would have raised an estimated 30 billion.”

Twitter and media spaces are abuzz with intellectuals, activists and individuals from across the country expressing their disappointment over the absence of the health tax from the federal budget proposal.

The influence of the powerful tobacco lobby, spearheaded by multi-national brands such as Phillip Morris International Inc. and British American Tobacco Plc., has long been debated across media platforms in the country. Analysts have highlighted that these international cigarette manufacturers evade accountability over revenue generation under the guise of their supposed efforts to curb elicit trade.

Responding to Dawar Butt’s observation on the taxes levied on cigarettes, Minister of State for Revenue Hammad Azhar tweeted, “Federal Excise Duty on tier 2 Cigarettes increased by Rs 8/pack and that on tier 1 increased by Rs 14/pack in the finance bill tables in Parliament. Excise taxes are levied to curb consumption of items.”

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