Pakistan: FBR Opposes ‘Sin Tax’ On Tobacco Industry
February 22, 2019: The Federal Board of Revenue (FBR) has advised against imposition of sin tax on the tobacco industry, arguing that it would cause substantial revenue loss in the range of Rs25 to 30 billion annually, The News has learnt.
However, the federal cabinet Thursday night could not finalise decision on Health Levy and it was decided that ministers for finance and health would sit together to sort out finances for the health sector. It seems difficult that there be any move on this front till upcoming budget for 2019-20.
“We have taken a clear cut view before the government that there is no need to disturb the existing three tier tax structure on the tobacco industry at this stage because it will cause substantial revenue loss on account of Federal Excise Duty (FED) and Sales Tax (ST)” one top official of the FBR confirmed to The News here on Thursday.
Quoting latest study done by the Pakistan Institute of Development Economics (PIDE), FBR official sources said graphs showed from the Household Income Expenditure Survey (HIES) that tobacco consumption had not decreased because of increased rates of cigarettes rather it shifted from formal to illicit or smuggled cigarettes when the tax burden increased. They said changes in tobacco taxation at this stage would result into placing more complex system so the FBR took decision to oppose this move at this stage.
The debate continues unabated since long whether taxation increase will help reduce consumption at a time when the illicit tobacco possessed major share in the market. The World Health Organization (WHO) recommends increased taxation burden on the tobacco industry that ultimately helps reduce its usage.
However, the tobacco industry has taken stance before the government by stating that the legitimate market possessed 66 percent share while illicit share was standing at 34 percent by March 2018.
They estimated that the formal tobacco sector basically belonged to two giant companies as they were estimated to contribute Rs115 billion in shape of tax collection during the current fiscal year.
The selling price of Value for family brands (VFM) stands at Rs58 per back. On other hand, their study on illicit tobacco showed that their share stood at 34 percent and contribution into national kitty was just 2 percent.