As Pakistan prepares for the federal budget of 2023-2024, advisory firm Adam Smith International, under its REMIT (Revenue, Mobilization, Investment, and Trade) project, has recommended further taxation on the tobacco industry.
The proposal aims to tighten the tax regime and increase the burden on tobacco companies. This suggestion comes after the government has already imposed heavy federal excise duties on cigarettes twice during the current fiscal year through supplementary budgets.
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Recommendations:
Adam Smith International’s proposal includes several key suggestions for the tobacco industry:
Increase in Federal Excise Duty (FED) on Raw Tobacco Purchases: The advisory firm advises raising the FED from the current rate of Rs10 per kg to Rs390 per kg on raw tobacco purchases. This measure would significantly raise the tax burden on the industry.
Higher Duty on Unmanufactured Tobacco (GLT): The firm also recommends increasing the duty on unmanufactured (GLT) tobacco from Rs390 to Rs500 per kg. This move aims to further discourage the consumption and production of tobacco products.
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Enhanced Duty on E-Cigarettes: Recognizing the growing popularity of e-cigarettes, the advisory firm suggests imposing higher duties on these products. By doing so, the government can ensure that these alternatives to traditional tobacco products are subject to the same taxation as their counterparts.
Equalize Duties on Imported and Locally Manufactured Cigarettes: To promote a level playing field in the tobacco market, Adam Smith International advises increasing the duty on imported cigarettes to align with the duty imposed on locally manufactured cigarettes. This measure aims to prevent any undue advantage that imported products may currently enjoy.
Justification:
The recommendations put forward by Adam Smith International are based on the objective of enhancing revenue mobilization and discouraging tobacco consumption. By increasing taxes on the tobacco industry, the government can achieve multiple goals, including:
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Revenue Generation: Higher taxes on the tobacco industry can contribute to increased revenue for the government. This additional revenue can be allocated to fund public welfare initiatives, healthcare programs, and other essential services.
Public Health Concerns: Tobacco consumption is associated with various health risks, including heart diseases, cancers, and respiratory problems. By intensifying taxation, the government aims to discourage smoking and reduce the overall prevalence of tobacco-related illnesses.
Economic Diversification: Encouraging higher taxation on tobacco products can indirectly contribute to economic diversification. By discouraging tobacco consumption, resources can be redirected to sectors that promote sustainable economic growth and job creation.
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As the government finalizes its budget for the upcoming fiscal year, the recommendations put forth by Adam Smith International suggest further taxation on the tobacco industry. By increasing taxes on raw tobacco, unmanufactured tobacco, and e-cigarettes, while equalizing duties on imported and locally manufactured cigarettes, the government aims to generate additional revenue and address public health concerns associated with tobacco consumption. The implementation of these proposals would require careful consideration to strike a balance between fiscal objectives and the overall well-being of the population.
