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Billions in tax breaks for smokers

The government has surreptitiously provided billions of rupees in tax relief by raising the taxable price level for the expensive cigarette brands, defying orders from Prime Minister Shehbaz Sharif and the major coalition partners campaigning for higher smoking taxes.

The adjustment was made just before the National Assembly approved the budget, which also diminished the gains that the administration hoped to achieve by marginally raising the federal excise tax on cigarettes.

A government adjusted the taxable pricing slabs to keep smoking affordable since it was unable to defend the salaried class in front of the International Monetary Fund (IMF). To prevent a discussion in public about the matter, the adjustment was not made on June 10.

According to the Finance Act 2022, which went into effect on July 1st, the government raised the threshold for higher charges on expensive cigarette brands.

Before the budget, if the printed retail price of 1,000 cigarettes exceeded Rs5,960, the government levied an excise levy of Rs5,200 per 1,000 sticks.

The government raised the excise charge for the priciest brands of cigarettes by Rs700 (13.5%) in the budget, to Rs5,900 per 1,000 cigarettes. The higher tax burden per cigarette is only 70 paisa.

But the government also raised the taxable threshold for the premium brand cigarettes from the printed price of Rs5,960 per 1,000 sticks to Rs6,660 – a benefit of Rs700 on every 1,000 cigarettes – to counteract the effect and also move a few pricey brands into the lower tax bracket.

Many brands that are currently in the low tax tier would have been moved to the higher tier had the government not increased the upper brands’ taxable price limit. This could have reduced smoking rates nationwide.

A few brands that were previously taxed at a reduced rate of Rs5,200 would now be assessed a tax of Rs1,850 per 1,000 sticks as a result of the change in the taxable price slab.

Dr. Ziauddin, Country Lead on Tobacco Control, Vital Strategies, stated that the government had deceived those who urged raising taxes to deter smoking.

He suggested that the prevalence of smoking would rise following the increase in the taxable slab limit, which would also sharply raise the expense of disease.

If tobacco taxes are not raised in Pakistan in 2022–or 2023, it is predicted that more than 260,000 individuals will start smoking, while 150,000 people will die annually from diseases associated with smoking, according to SPDC estimates. Prime Minister Shehbaz Sharif expressed his displeasure with the proposed hike in FED rates when presiding over a cabinet meeting on new budget plans on June 10th, and he requested that the tax burden be increased by an additional Rs25 billion in the upcoming fiscal year.

Approximately 88 percent of the market is made up of low-taxed cigarettes, and the average excise tax share is just about 45 percent of the retail price, which is far lower than the generally acknowledged benchmark of 70 percent of the retail price.

Other industries have received tax breaks worth billions of rupees besides tobacco. The government has also given the stock market an income tax break worth Rs 8 billion.

One of the two major manufacturers, the Pakistan Tobacco Company, claims that the FBR has a history of moving the threshold between Tier I and Tier II cigarettes by an increase in the Tier I FED rate. According to the corporation, this enables raising the minimum price of cigarettes sold in the nation, complementing the public health objective and generating government revenue.

Written By

Mahnur is MS(development Studies)Student at NUST University, completed BS Hons in Eng Literature. Content Writer, Policy analyst, Climate Change specialist, Teacher, HR Recruiter.

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