Federal cabinet shoots down ‘Sin Tax’ proposal

Approves eleven-member board of Sarmaya-e-Pakistan Limited Company

ISLAMABAD: The federal cabinet on Thursday rejected a proposal to impose Sin Tax on consumption of tobacco and beverages due to legal and administrative hitches in enforcement of the levy.

The Ministry of National Health Services tabled the draft bill, seeking permission to impose Rs10 federal health levy on a 20-stick cigarettes pack and Re1 on 250 milliliter sugar sweetened beverage. The federal health levy has been originally called a “Sin Tax”.

The cabinet approved an eleven-member board of Sarmaya-e-Pakistan Limited (SPL) company that has been setup to reform dozens of loss making state-owned enterprises by separating them from their parent ministries.

The Federal Minister for Information Fawad Chaudhry told The Express Tribune that the federal cabinet did not approve health levy. He said the cabinet also approved board of the SPL Limited.

The Ministry of National Health Services had proposed the Sin Tax to “finance health insurance scheme and fatal diseases programme” of Prime Minister Imran Khan.

But Finance Minister Asad Umar took the stance that it was not appropriate for any other ministry to make taxation proposals, according to participants of the meeting. Under the Rules of Business, it is the job of the Revenue Division to propose tax measures.

There were also concerns that the decision to impose a Levy through Finance Bill may not withstand courts’ scrutiny. The revenues generated through imposing a levy instead of a tax do not become part of federal divisible pool being shared by the provinces and the Centre.

There was also a concern that the provinces may raise constitutional objections to collect levy on health, which is a provincial matter under the 1973 Constitution, said the officials. Furthermore, any increase in tax burden of the tobacco sector could lead to reduction in its revenues.

The FBR collected Rs74 billion revenues from the cigarette manufacturers in the last fiscal year –which was down by one-third over the previous fiscal year due to change in tax slabs. It now expects to collect around Rs115 billion by end of this fiscal year.

The Health Ministry wanted that the Sin Tax should be charged, levied and paid on manufacturing, sale or transfer of cigarettes and sugar-sweetened beverages by manufacturers, producers and importers. Revenue collected through health levy should be allocated for health budget of the federal government.

The cabinet directed the Health Minister Aamer Kiani to hold a meeting with Finance Minister Asad Umar to get financing for his health projects instead of imposing a levy, said the officials.

Under the National Health Programme, originally launched by former PM Nawaz Sharif, nearly 3.2 million families in 38 districts were given health coverage. PM Khan wants to expand the programme’s horizon to 18 million poor families across Pakistan.

In Pakistan tobacco is a cause of death of around 160,189 people annually. Almost 15.6 million adults currently smoke tobacco in the country, according to the Ministry of National Health Services. The economic cost of the smoking is estimated at Rs143.2 billion annually, including direct and indirect cost.

Over consumption of sugar is a major cause of obesity, diabetes and tooth decay. Over 27.4 million people are suffering from diabetes and another 14.5 million are at risk of diabetes.

The federal cabinet on Thursday also approved eleven-member board of Sarmaya-e-Pakistan Limited (SPL) aimed at reviving the loss making government enterprises.

The cabinet ratified the decision of the Cabinet Committee on State Owned Enterprises (CCoSOEs) that had finalised eight private member candidates out of a list of 21, proposed by the Finance Division.

The cabinet approved the names of Kamran Yousaf Mirza, Ahmad Jaudat Bilal, Arshad Nasar, Musharraf Hai, Babar Badat, Zubyr Soomro, Nadeem Babar and Ehsan Malik for appointment as directors on the company’s board.

The cabinet approved names of five alternative members to be considered in case any of the members from the approved list chooses refuses to become a director. These are Waqar A Malik, Muhammad Aliuddin Ansar, Zafar A Khan, Khalid Mansoor and Atif Aslam Bajwa.

The CCoSOEs had also considered few names for appointment of chairman of the Saymaya Company but it left the decision on the board to pick its chairman.

The names have been approved a week after the government incorporated the company. It is an unlisted public company with 100% shareholding of the government. The Cabinet Committee, being headed by Prime Minister Imran Khan, will oversee the SPL Company.

In addition to eight private members, there are three ex-officio government members – secretary Finance Division, secretary Industries and Production Division and secretary Power Division.

The private sector members have been picked on basis of capability, credibility and integrity. It has also been decided that the board will formulate a Conflict of Interest Policy under Corporate Governance Rules.

The Pakistan Tehreek-e-Insaf (PTI) government has set up the company to reform the ailing state-owned enterprises. After coming into power, the government had delisted almost 55 enterprises from the list of active privatisation including Pakistan Airlines and Pakistan Steel Mills.

The cumulative debt of the PSEs increased to over Rs1.5 trillion by end of December. The government on Thursday also gave ‘look after charge’ of the Pakistan Steel Mills’ to Naeem Jan, joint secretary of Ministry of industry.