ISLAMABAD: The federal cabinet rejected a proposal to impose sin tax on consumption of tobacco and beverages due to legal and administrative hitches in enforcement of the levy.
During the meeting, the Ministry of National Health Services tabled the draft bill in the cabinet meeting, seeking permission to impose Rs10 federal health levy on a 20-stick cigarettes pack and Re1 on 250 milliliter sugar sweetened beverage. The federal health levy has been originally called a “sin tax”.
The cabinet approved an eleven-member board of Sarmaya-e-Pakistan Limited (SPL) company that has been setup to reform dozens of loss making state-owned enterprises by separating them from their parent ministries.
The Ministry of National Health Services had proposed the sin tax to “finance health insurance scheme and fatal diseases programme” of Prime Minister Imran Khan.
But Finance Minister Asad Umar took the stance that it was not appropriate for any other ministry to make taxation proposals, according to participants of the meeting. Under the Rules of Business, it is the job of the Revenue Division to propose tax measures.
There were also concerns that the decision to impose a Levy through Finance Bill may not withstand courts’ scrutiny. The revenues generated through imposing a levy instead of a tax do not become part of federal divisible pool being shared by the provinces and the Centre.
There was also a concern that the provinces may raise constitutional objections to collect levy on health, which is a provincial matter under the 1973 Constitution, said the officials. Furthermore, any increase in tax burden of the tobacco sector could lead to reduction in its revenues.
The FBR collected Rs74 billion revenues from the cigarette manufacturers in the last fiscal year –which was down by one-third over the previous fiscal year due to change in tax slabs. It now expects to collect around Rs115 billion by end of this fiscal year.
The Health Ministry wanted that the Sin Tax should be charged, levied and paid on manufacturing, sale or transfer of cigarettes and sugar-sweetened beverages by manufacturers, producers and importers. Revenue collected through health levy should be allocated for health budget of the federal government.
The cabinet directed the Health Minister Aamer Kiani to hold a meeting with Finance Minister Asad Umar to get financing for his health projects instead of imposing a levy, said the officials.
