May 292015

An unhealthy lifestyle is about to get more expensive in Pakistan: the government has decided to increase taxes on cigarettes, carbonated beverages, and even sugar in a bid to raise more revenue in the upcoming budget for fiscal 2016.

The proposals are part of the taxation measures that will be put on the table before the federal cabinet on June 5 and, once approved, will be implemented from July 1, the beginning of fiscal year 2016, said sources in the finance ministry.

The government has finalised a budget proposal to increase the federal excise duty (FED) on both categories of cigarettes by between 19% and 33% from the new fiscal year, they added. In the category where the price of a thousand cigarettes is over Rs2,706 or Rs2.70 per stick, the new tax rate is proposed at Rs3,150. The proposed rates are 19% or Rs518 higher than the prevailing tax rates.

For the second category, having price range of less than Rs2,706 per thousand sticks, the government has proposed to increase the tax rates by one-third to Rs1,450, the sources said.

Tobacco is already considered a non-essential consumption item by the government. In the previous budget, the government had also increased the FED rate on cigarettes in the range of 13.2% to 23.3%. The government finds it easy to tax smokers due to injurious effects of the smoking on health.

A recent study by the Global Adult Tobacco Survey (GATS) reveals that about one-fifth of Pakistan’s adult population is addicted to smoking. Nearly one out of every three adult men and six out of every hundred women use tobacco in some form in Pakistan. Yet as much as Pakistanis smoke, they appear to want the government to help them quit. The same survey also found that three out of every four adults wanted taxes on tobacco increased even further.

The government is also proposing to increase FED rates on carbonated beverages by a third, from 9% to 12%, said the sources. The move is expected to generate billions of rupees in revenues for the Federal Board of Revenue (FBR).

After sustaining huge losses during fiscal 2014, which was also the first year of the Nawaz Administration, the government in the last budget had reverted to the normal tax regime for aerated waters by abolishing the fixed capacity tax regime. Under the normal regime, FED is chargeable on the concentrate at a rate of 50% of its value, while currently 9% FED and 17% sales tax is charged on carbonated beverages.

The FBR is also proposing to increase the FED rates on sugar from 8% to 17%, said the sources. However, despite the widespread prevalence of Type II diabetes in the country, and unlike the proposals on cigarettes and soft drinks, the FBR is expecting resistance to the sugar recommendation from the federal cabinet.

The government may also double FED rates on imports of edible oil from Rs1 per kilogram to Rs2 per kg. It is also considering doubling FED tax rates on oil seeds, from Rs0.40 per kilogram to Rs0.80 per kg.

Steel melters may also see a 28% increase in their tax burden on account of sales tax charged from the steel melters and re-rollers. It is proposing to increase the rate of sales tax paid by steel melters and re-rollers from Rs7 per unit of electricity to Rs9 per unit. In the last budget, the government had also brought changes in the tax structure for the steel industry. Collectively, these measures are expected to impact industrial activity and housing construction.

Published in The Express Tribune, May 30th, 2015.

The post Taxman sets sights on cigarette, sugar appeared first on The Express Tribune.

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