October 16, 2024

About time IMF stay put on its recommendation for uniformed tax on tobacco products

Dr Hassan Shehzad

Teaches Data Journalism and Public Diplomacy.

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ISLAMABAD: In a pre-budget discussion, arranged by Business Recorder in Lahore, former finance minister Dr Hafiz A Pasha proposed to the incumbent minister Muhammad Aurangzeb, who was also present on the occasion, to “strategise 3 percent increase in the tax to GDP ratio in the next three years by … (a) fundamental tax reform in the country”.

Capital Calling, an Islamabad-based think tank, has held a discussion on the fundamental tax reform, advocating for taxing tobacco in line with internationally accepted standards. Citing research reports, it says that “in the fiscal year 2022-23, cigarette taxes covered only 16% of these expenses, marking a decline from 19.5% in 2019.”

Citing another credible report, the think tank stated, “when the government abolished the third tax tier in 2019 which effectively reduced the tobacco industry’s manoeuvring space to sell cheaper cigarettes by avoiding taxes, the tax contribution of the industry actually increased to 120 billion Pakistani rupees (Rs) compared to Rs 92 billion in 2016.”

“This raised the tobacco industry’s share of total tax collection to 3 percent from 2.15 percent in FY16. The government’s reluctance to change tobacco tax policy is partly due to its failure to fully appreciate the smoking-attributable fraction (SAF) of health and social costs. This makes its benefit-cost analysis of tax revenue faulty and compromised over e health outcomes.”

The think tank stated that International Monitory Fund had referred to one of its reports recommending tax reforms that endorses many of international studies deciphering a positive relationship between decline in cigarette consumption and increase in its prices.

It also quoted the IMF recommendation for uniformed tax on both local and foreign cigarettes, produced in the country. It said that now is the time for the government to fix the flaws in taxing tobacco so that trends of smoking come down and it is easier for Pakistanis to make both ends meet.

It said that the IMF should stay put on this recommendation as tobacco industry has a global reputation for moulding laws and regulations in its favour. Cases of their malpractices have been reported Pakistan being a week country, it said, need to be vigilant of these practices.