Pakistan govt puts expensive cigarette brands in lower tax slab

Islamabad [Pakistan], July 5 : Pakistan government has quietly increased the threshold for higher duties on expensive cigarette brands to keep smoking affordable in the country.
The government was charging an excise duty of Rs 5,200 per 1,000 cigarettes, however, to bring a few expensive brands into the lower tax slab, the government increased the taxable threshold for the upper brand cigarettes from the printed price of Rs 5,960 per 1,000 sticks to Rs 6,660. The change was made on the eve of approval of the budget by the National Assembly, reported The Express Tribune.
Many smoking brands that now fall in the low tax tier would have been shifted to the upper-tier if the government had not mended the upper brands' taxable price limit as it would have discouraged smoking in the country.
Before the budget, the FED on the locally produced cigarettes with a retail price of less than Rs 5,960 per 1,000 cigarettes was Rs 1,650 that in the budget was increased to Rs 1,850 which led to an additional tax of 20 paise per cigarette. The threshold to determine the low tax rate earlier was up to Rs 5,960, but it has now gone up to Rs 6,660, The Express Tribune reported.
"The government has tricked the people who advocated increasing the tax burden to discourage smoking," said Dr Ziauddin, Country Lead on Tobacco Control, Vital Strategies, adding that after the increase in the taxable slab limit, the smoking prevalence would increase, which would also significantly push up the cost of illness.
Pakistan ranks very low in the Tobacconomics Cigarette Tax Scorecard that evaluates the strength of tax systems, with an overall tax score of less than one on a five-point scale due to unchanged and low tobacco taxes.
According to SPDC estimates, more than 260,000 people will start smoking in Pakistan, if tobacco taxes are not raised in 2022-23, while around 150,000 die every year due to smoking-related ailments, stated the SPDC report.
While chairing a cabinet meeting on new budget proposals on June 10th, Prime Minister Shehbaz Sharif showed his dissatisfaction with the proposed increase in FED rates and sought that the tax burden should be further increased by Rs25 billion in the new fiscal year.
Meanwhile, Finance Minister Miftah Ismail also assured the Pakistan Peoples Party - the main coalition partner - that he would make sure that the tobacco sector will pay Rs225 billion in taxes as against Rs150 billion in the just-ended fiscal year. This promise may also remain unfulfilled.
However, slamming the decision regarding higher duties on the expensive cigarette brands, Federal Water Resources Minister, Khursheed Shah said that Pakistan was among the countries having the lowest tax on cigarettes, which was not only reducing revenue but also putting people's health at stake, The Express Tribune reported.
According to SPDC estimates based on IMF projections, approximately 4 of per capita income was required to purchase 2,000 cigarettes in 2020-21, which would decrease to 3.6 per cent in 2021-22 and further decrease to 3.2 per cent in 2022-23 if cigarette prices do not rise.
The low-taxed cigarettes comprise the majority of the market while the average excise tax share is nearly 45 per cent of the retail price, which is significantly lower than the widely accepted benchmark of 70 per cent of the retail price.
According to Pakistan Tobacco Company -one of the two leading manufacturers in Pakistan, the threshold between Tier I and Tier II of cigarettes move in sync with the increase in Tier I FED rate which allowed for increasing the minimum price of cigarettes sold in the country, the company stated.
Shehbaz Sharif's government on Friday increased the tax rates for the salaried class to fulfil the demands of the International Monetary Fund (IMF).
It had withdrawn the tax relief to the salaried class announced on June 10 and the Federal Board of Revenue (FBR's) collection target was increased to Rs 7,470 billion.
On Personal Income Tax (PIT), the government raised a tax amount of Rs 80 billion as first, the government abolished tax relief of Rs 47 billion and then raised a tax amount of Rs 35 billion, so the FBR was going to collect Rs 235 billion from salaried class in the next budget against a collection of Rs 200 billion in the outgoing fiscal year.