Budget 2019-20: Health tax on cigarettes ignored

Earlier, cabinet decided to make health levy part of Finance Bill 2019

Zafar Bhutta June 13, 2019
A Reuters file photo showing ash tray with cigarette butts.

ISLAMABAD: The government has ignored the cabinet’s decision on imposing a health tax on cigarettes in the budget for fiscal year 2019-20 in a bid to generate funds for development of the health sector.

The cabinet, in a meeting held on May 28 and chaired by Prime Minister Imran Khan, was given a briefing on the budget strategy paper 2019-20. It decided to impose health tax on tobacco at the rate of Rs10 per pack of 20 cigarettes. It was also agreed that the tax would be made part of the Finance Bill 2019.

However, certain lobbyists appeared to be influencing the affairs and the decision on health levy was not implemented.

Sources told The Express Tribune that the Federal Board of Revenue (FBR) chairman pointed out that annual revenue collection from cigarette manufacturers was projected to stand at Rs114 billion. However, after ending the third tier of federal excise duty (FED) introduced by the previous Pakistan Muslim League-Nawaz (PML-N) government, the annual revenue receipts from the industry would go up to Rs150 billion. Revenue collection from the cigarette industry was Rs114 billion in 2016 but after introduction of the third FED slab, the revenue flow dropped to Rs80 billion in 2017.

However, officials of the health ministry did not agree with arguments of the FBR chief, saying the cabinet had taken a decision to impose health tax. However, they said, the tax was not made part of the Finance Bill 2019.

According to the ministry officials, a certain lobby has managed to create hurdles in the way of including the health tax in the finance bill.

According to documents available with The Express Tribune, the cabinet in its meeting held on May 28, 2019 approved the medium term macroeconomic framework after reviewing presentation of the Finance Division on the budget strategy paper. Furthermore, the cabinet decided to impose health tax on tobacco at Rs10 per pack of 20 cigarettes and on carbonated drinks at Re1 per 250ml bottle through the Finance Bill.

It also agreed that the revenue generated through the health tax would be earmarked for development of the health sector over and above the budgetary allocation.

The cabinet decided that the finance bill would also include measures for tackling the illegal manufacturing and trade of cigarettes and other tobacco products.

The Cabinet Division also wrote a letter on June 3 to the finance secretary, national health services, regulation and coordination secretary and revenue secretary to implement the decision within seven days under Rule 24 of the Rules of Business 1973 in coordination with other divisions, where necessary.

An implementation report may be furnished to the Cabinet Division within seven days of the receipt of the decisions, the cabinet said.

Published in The Express Tribune, June 13th, 2019.

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