Sources told Business Recorder that the Health Ministry summary on 'Sin Tax' on cigarettes and soft drinks was not taken up by the ECC in its meeting on Tuesday.
Both the tobacco industry and beverages are major contributors to excise duty, within the head of indirect taxes, and the input and comments of the FBR has top priority being federal revenue collection agency. The FBR has already seriously taken up the issue of illicit trade by creating a new department, ie, Inland Revenue Enforcement Network to check non-duty paid and counterfeit cigarettes in Pakistan. The FBR Directorate of Intelligence and Investigation Inland Revenue is also seriously taking enforcement actions against smuggled and non-duty paid cigarettes.
Experts said that the FBR's input has prime importance while imposing any kind of taxes on tobacco industry and beverages to avoid any negative implications. The FBR has to see the pros and cons of any taxation or changes in fiscal laws for major industry and implications of any new levy like health tax. The text of the summary of Health Ministry on Sin Tax has not incorporated any viewpoints/comments of the FBR. However, the ministry has proposed that the FBR should be directed to collect 'Sin Tax' on tobacco and beverages.
Experts have raised question whether globally health tax is a successful concept. It is only working in one country, effectiveness of which is questionable and something that despite that cannot be replicated because of the unique dynamics of various countries including Pakistan.
Health tax has also proven to be not effective in some countries and was withdrawn later. Its collection complexities, rigidities and lack of across of the board enforcement were some reasons.
As per the FCTC of the WHO, each country has its own sovereign rights to choose its own national fiscal policy.
Prime Minister Imran Khan recently mentioned that illicit trade in cigarettes is a huge issue since it holds close to 40 percent of the market and contributes only 2 percent of the total tax revenues. The main reason due to this high illicit incidence is excessive excise rate increases.
Health tax is another form of excise tax which will again increase prices of legitimate brands but have no effect on the 40 percent illicit market that will continue to sell even below the minimum price in the country. Therefore, the enforcement against this black market is necessary and coordination amongst various departments is necessary to take inputs and to take industry on board.