Ministry again demands withdrawal of lowest tax slab for cigarettes

Says third slab of federal excise duty has caused 77% increase in cigarette production

ISLAMABAD: The Ministry of National Health Services, Regulation and Coordination has once again approached the Ministry of Finance, asking it to immediately withdraw the lowest third slab of federal excise duty (FED) for the cigarette industry.

The slab, introduced by the Pakistan Muslim League-Nawaz (PML-N) government, caused a loss of Rs33 billion to the national exchequer and contributed to an increase in the number of smokers.

In a letter sent to the Ministry of Finance on Wednesday, Health Minister Amir Mehmood Kiani said the third slab of duty had resulted in a 77% increase in cigarette production compared to last year, posing a serious threat to public health. A spokesperson for the health ministry confirmed that the letter had been written as during a meeting in the ministry it was decided to approach the finance ministry.



Kiani pointed out that Pakistan had signed the international Framework Convention on Tobacco Control in 2004 and under Article 6 of the agreement Pakistan was bound to increase the tax on tobacco industry. He recalled that the health ministry had recommended a federal excise duty of Rs44 on the lowest slab for the cigarette industry in the FY18 budget, but the proposal was rejected. Instead, a new third slab of Rs16 was introduced, which led to a reduction in the price of some cigarette brands.



Later, he said, the health ministry recommended the scrapping of the third slab and imposing a health levy in the FY19 budget, but the recommendation was also turned down. After the introduction of the third tax tier in May 2017, two major players in the cigarette industry shifted their famous brands to the lowest tax slab and sold cigarettes with a 50% duty reduction, which enhanced their sales but government revenues plunged, according to an audit report.

The National Accountability Bureau (NAB) has also initiated a probe into the Rs33-billion loss to the public purse.

Pakistan National Heart Association General Secretary Sanaullah Ghumman told The Express Tribune earlier that tobacco companies had been paying Rs114 billion in taxes, but after the introduction of the third tier, tax payments dropped to Rs79 billion.

However, the production of cigarettes increased as well as the number of smokers.

Meanwhile, tobacco control advocates have backed the health minister’s recommendation of scrapping the third tier of excise duty on cigarettes, assuring him their support in implementing tobacco control policies in Pakistan.

“We welcome and back the recommendation of scrapping the third tier of excise duty on cigarettes,” said Coalition for Tobacco Control – Pakistan (CTC- Pak) National Coordinator Khurram Hashmi.

“What tobacco industry is contributing to the economy is far less than what it costs in terms of health expenditures the country bears because of the hazards caused by tobacco use. The health loss caused by the tobacco industry is irrecoverable.” 

Published in The Express Tribune, September 6^th, 2018.

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