Govt Set to Increase Taxes on Cigarettes to Fund Health Insurance Program

In hopes to boost funds for a health insurance scheme and a fatal disease program in the forthcoming budget for fiscal year 2019-2020, the PTI-led government is set to increase the tax on cigarettes.

A health levy was proposed on cigarettes and sugary beverages in the draft of the Health Levy Bill 2019, presented by the National Health Services and Coordination Division earlier this year. While the FBR has opposed the levy on the cigarette manufacturing sector, the Finance Division was far more agreeable on the proposed imposition of levy on cigarette.

During the previous government, a third tier of federal excise duty had been constituted for the cigarette industry, however, it led to a loss of billions of rupees to the national exchequer. The health levy is opposed by the FBR because they are of the view of lesser taxes on the cigarette industry. The matter was sent to a special committee by the Senate, it has been formed to investigate the fall in tax revenue from the cigarette industry.

According to the report sent by the committee to the Senate, due to the third duty tier, tax collection had dropped to PKR 74 billion from cigarette manufacturers and they urged the government to fully implement the committee’s recommendations as they could help increase the collection to PKR 120 billion by the end of current fiscal year on June 30, 2019.

Last year, a special audit to be carried out by the Auditor General of Pakistan (AGP) was suggested by the Public Accounts Committee to help explain the large decrease in tax collection from the cigarette industry.

Both the AGP report and recommendations of the committee show that the decline in revenue is due to the third tier duty and lobbying done by the manufacturers. The National Accountability Bureau (NAB) has launched an investigation into the matter because the AGP report shows that whilst the production and profits of the manufacturers went up, the government revenue fell.

The National Health Services and Coordination Division has been ordered by the cabinet to develop an efficient tax proposal in line with the draft of the health levy bill because the government hopes to generate additional revenue by increasing the tax on the cigarette industry.

The Prime Minister’s Office is keen on the imposition of the health levy on the cigarette industry and sugary beverages and has asked a summary of consideration be provided to the Economic Coordination Committee (ECC) of the cabinet by the health services division.

In lieu of the directive, a tax of PKR 10 per pack of 20 cigarettes and PKR 1 per bottle of 250ml of sugary drinks has been recommended by the division; in line with financing the health insurance scheme as well as the fatal disease control program.

The introduction of any tax fell within the meaning of money bill under Article 73(2)(a) of the constitution, a view held by the cabinet according to documents. A money bill after being approved by the cabinet is presented in the National Assembly in accordance with Rule 16(1)(a) and (d) of Rules of Business 1973.

Furthermore, it was recommended that the views of the FBR and Ministry of Law and Justice should be sought. The Finance Division has agreed to the proposal but FBR has cited different parts of the constitution and illicit trade issues and not given its backing.