Tax relief on cigarettes

Government has silently given billions of rupees in tax relief to costly cigarette brands

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Government has raised the taxable price level for costly cigarette brands, billions of rupees have been given silently in tax relief. However, it is contrary to Prime Minister Shahbaz Sharif’s instructions and the main coalition partner’s lobbying for rise in taxes on smoking.

The change was undertaken on the eve of the National Assembly’s ratification of the budget, eroding the benefits that the government hoped to earn by marginally increasing the federal excise duty on cigarettes.

Read more: What’s harming Pakistan’s tax revenue collection?

The government raised the threshold for greater charges on costly cigarette brands in accordance to the Finance Act 2022 which went into effect on July 1.

Prior to the budget, government was charging excise duty of Rs5,200 per 1,000 cigarettes, if the printed retail price was over Rs5,960 per 1,000 sticks.

In the budget, the government increased the excise duty by Rs700 or 13.5% to Rs5,900 per 1,000 cigarettes for the costly brands. The per cigarette additional tax impact is only 70 paisa.

To mitigate the impact and bring a few costly brands into the lower tax bracket, the government raised the taxable threshold for top brand cigarettes from Rs5,960 per 1,000 sticks to Rs6,660 – a Rs700 on every 1,000 cigarettes.

Read more: Why Pakistan needs a new tax model for economic prosperity

Many brands that are now in the low tax tier would have been relocated to the upper tier if the government had not increased the upper brands’ taxable price limit. This may have discouraged smoking in the country.

Prior to the budget, the FED on the locally produced cigarettes with a retail price of less than Rs5,960 per 1,000 cigarettes was Rs1,650 that in the budget was increased to Rs1,850.

This totals to additional tax of a mere 20 paisa per cigarette. The threshold to determine the low tax rate was up to Rs5,960, which has also now gone up to Rs6,660.

After the change in the taxable price slab, a few brands that were earlier taxed at a reduced rate of Rs5,200 would now be charged a tax of Rs1,850 per 1,000 sticks.

Dr. Ziauddin, Country Lead on Tobacco Control, Vital Strategies said, “the government has tricked with the people who advocated increasing the tax burden to discourage smoking.” Moreover, he contended that increasing the taxable slab limit would increase smoking prevalence, raising the expense of disease dramatically.

As many as 31 million adults (age 15 +) or about one-fifth of the total adults currently use tobacco, according to Social Policy and Development Centre (SPDC). It added tobacco use is the leading cause of death due to non- communicable diseases (NCDs), such as cancer, chronic respiratory diseases, and cardiovascular disease.

Finance Minister Miftah Ismail also promised the Pakistan Peoples Party, the primary coalition partner, that the tobacco industry will pay Rs225 billion in taxes, up from Rs150 billion in the previous fiscal year. This promise could also go unfulfilled.

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