Latest news with #FederalExciseDuty
Business Recorder
3 days ago
- Business
- Business Recorder
Budget FY26: fiscal discipline without reform
Fiscal consolidation continues. FY26 is expected to be the third consecutive year of a primary fiscal surplus. This should help lower the public debt-to-GDP ratio and provide some cushion for future growth. However, economic strangulation is also likely to persist, as the government remains reliant on higher direct taxes without offering any relief to salaried individuals or the corporate sector. This is not going to be a revolutionary budget. It is simply a continuation of policies already agreed upon with the IMF. Pressure on tax revenues will remain. As interest rates decline, banks and depositors' incomes will fall — dragging down the corresponding tax collections. Income from the oil and gas sectors may decline due to reduced domestic production (to accommodate imported RLNG) and subdued global prices. Fertilizer sector margins are expected to stay suppressed. Consequently, direct tax collection at current rates may be lower in FY26 compared to key contributors the preceding year. Meanwhile, the IMF is pushing for implementation of the National Tariff Policy (NTP), but the government is hesitating. The FBR is concerned about lower collections from customs duties. The question, then, is how to plug the fiscal gap. The standard response is to go after retailers and wholesalers and talk of expanding the tax net. History suggests these efforts rarely yield results. There are gaps in the revenue framework. This is why the IMF has not agreed to reducing the effective tax burden on salaried individuals or to scrapping the super tax on corporates. The Federal Excise Duty (FED) on certain items is likely to be increased — or newly imposed, including on cigarettes and ultra-processed foods. But without better enforcement, these measures will only push more activity into the informal economy. Already, the formal footprint in sectors like dairy and fruit juice is shrinking due to recent indirect tax hikes. Poor governance and the prevalence of other taxes will dilute any benefit from reducing import tariffs. While economic theory supports lower tariffs to disincentivize smuggling, other taxes create perverse incentives. For example, the FBR collects withholding tax (WHT) and sales tax at the import stage, followed by GST and FEDs on final products. Ideally, these taxes should also be reduced — but that is wishful thinking. In fact, the FBR is proposing new, unconventional taxes — such as a 1.5 percent WHT on all imports. If the NTP is implemented, lower import prices may drive up import volumes, increasing pressure on the PKR. In response, the FBR may increase GST or FED on selected goods, such as automobiles. One area urgently needing reform is the customs department. Rampant under-invoicing not only erodes tax revenue but also undermines domestic manufacturing. Without fixing this, the effectiveness of the NTP will be limited. The FBR, however, appears desperate. There is already a shortfall of Rs 1 trillion in tax revenue during the first 11 months of FY25, and meeting the FY26 target will be even more difficult. As always, the burden will fall on the already-taxed formal sector. Non-tax revenues are expected to perform well. The SBP is likely to post another bumper year of profits, driven by over Rs 13 trillion in open market operation (OMO) injections. Last year, the SBP contributed Rs 2.5 trillion to non-tax revenues, and a similar figure is expected this year. The government is also relying on petroleum levy, which already stands at around Rs 80/liter and may be increased to Rs 100/liter. Additionally, a carbon levy of Rs 5–10/liter is under consideration. There is limited space for expenditure cuts, aside from some savings in interest payments on debt. The government has reportedly secured IMF approval for a significant increase in defence spending. However, negotiations are ongoing regarding the size of the development budget. Regardless of what is initially allocated, it is likely to be trimmed later if tax revenues from retailers and the real estate sector do not materialise. In conclusion, the upcoming FY26 budget reflects a cautious, IMF-driven approach—prioritizing fiscal consolidation over transformative change. While primary surpluses and robust non-tax revenues, bolstered by SBP profits and petroleum levies, offer some macroeconomic stability, the continued reliance on existing taxpayers and indirect taxes risks stifling growth and further entrenching informality. Without bold reforms—particularly in customs enforcement and tax administration—structural weaknesses will persist, limiting the effectiveness of flagship measures like the National Tariff Policy. Though lower commodity prices and fiscal discipline may support modest growth in FY27 and FY28, the absence of meaningful structural change leaves Pakistan's fiscal trajectory precariously balanced. Copyright Business Recorder, 2025
Business Recorder
4 days ago
- Business
- Business Recorder
Minister opposes IMF demand of more taxes on agri sector
KARACHI: Sindh Minister for Agriculture Muhammad Baksh Mahar has expressed serious concerns over the International Monetary Fund's (IMF) demand to impose an 18% General Sales Tax (GST) and increase Federal Excise Duty (FED) on fertilisers, sprays, and agricultural machinery. Mahar said, 'The IMF's demand is extremely unfair and anti-farmer, which will prove disastrous for the country's agricultural sector and farmers. The IMF must refrain from proposing additional taxes on the agriculture sector.' He emphasised that farmers across the country, including Sindh, are already suffering due to climate change, water scarcity, and low crop prices. The provincial minister warned that the new taxes would lead to an enormous increase in agricultural production costs, ultimately jeopardising food security. He stated that this would trigger a new wave of inflation in the country. He strongly urged the federal government to persuade the IMF and make it aware of the importance of the agriculture sector. He made it clear, 'The IMF's demand is causing severe unrest among farmers, and we vehemently oppose any such proposal.' He said that providing facilities to agriculture is the need of the hour instead of imposing additional burdens on it. Copyright Business Recorder, 2025
Business Recorder
7 days ago
- Health
- Business Recorder
FED on processed foods: nutritional reform or revenue racket?
Pakistan's latest policy brainwave is to slap an excise duty on processed and packaged food products and call it a public health intervention. This is not just lazy, it is dangerous. The proposed Federal Excise Duty (FED) on over 50 categories of processed food is not public health policy. It is fiscal adventurism, masquerading as nutritional reform. And unless called out, it risks doing more harm than good. Let us not mince words. Pakistan is hurtling toward a public health catastrophe. It now ranks among the world's top three countries in diabetes prevalence, while cardiovascular disease is responsible for one in three deaths. Sugar, salt, and trans fats are the real pandemic. But treating the entire formal food industry as the villain, without nuance or scientific basis, is lazy governance—not reform. If the real target is unhealthy food, then policy design must reflect that specificity. The government has circulated proposed nutrient thresholds for sugar, sodium, fat, and other risk-linked compounds. But these exist only as draft technical markers. There is no binding notification, no declared compliance timeline, and no roadmap for enforcement. Nor is there a legally mandated front-of-pack labelling regime or any mass-market education campaign. Rushing into fiscal penalties while the regulatory groundwork remains unfinished is like erecting toll booths before building roads. Price elasticity is real. If the cost of regulated, packaged foods rises, low-income consumers may switch to cheaper and unregulated informal alternatives. The result? Possibly no change in sugar or fat consumption. Just a shift in source—from visible and reformable, to invisible and unchecked. Any policymaker unaware of this trade-off has no business being near public health design. Global evidence supports sin taxes—but only when designed intelligently. Countries such as Mexico, Chile, and the UK offer lessons worth learning. Their success did not stem from excise duties alone. It came from integrated design: nutrient-threshold-based taxes, mandatory front-of-pack labelling, credible market awareness campaigns, and reformulation incentives that helped industry transition. These countries also had the institutional muscle to enforce rules, verify compliance, and track changing trends in consumer behavior. In contrast, Pakistan's current food regulation ecosystem lacks even basic dietary consumption data, let alone enforcement capacity. Even the IMF, in its May 2025 Staff Report, does not specifically recommend excise as a tool for public health improvement. It does endorse broadening the base of indirect taxation and bringing high-consumption, non-essential items into the tax net. That much is true. But that endorsement is fiscal, not nutritional. It is about revenue targets, not sodium levels. To position this tax as IMF-compliant health reform would be opportunism at best. Any serious food policy must begin with a national awareness regime grounded in mandatory front-of-pack labelling, coupled with clear and enforceable nutritional guidelines. This must precede any penalizing regime of sin taxes by several years. Labelling must not be an afterthought—it must be the first policy milestone. Second, the objective of excise taxation should never be to raise revenue. It must be to steer both market production and consumer behavior through targeted price signals. And any revenue that is collected must be hypothecated—not absorbed into the federal black hole—but reinvested into the food system. This includes funding industry incentives for reformulation, compliance grants for small manufacturers, and sustained consumer awareness efforts. A stick-and-carrot model must replace the current one-size-fits-all bludgeon. If health is the objective, then let us start acting like it. That begins with defining what qualifies as nutritionally harmful, and enforcing those standards consistently across all food categories. If the state, in its infinite wisdom and scientific rigour, has conclusively determined—based on global and domestic evidence—that ingredients such as refined sugar, sodium, and transfat-heavy palm oil pose critical public health threats, then address the problem at its root. Do not just penalize selective formal usage of these ingredients through excise, while ignoring their unchecked and far more pervasive use in the informal commercial sector. If the goal is to cut off the problem at the source, why only tax its most visible—and already overtaxed—manifestation, while ignoring the black hole of informal consumption? Let us also move past declarative wishlists. A serious policy would phase in nutrient-based excise, tied to verifiable thresholds. It would align fiscal incentives with reformulation behavior. It would make labelling legally binding, not optional. It would deploy social marketing campaigns to change demand. And it would collect real dietary consumption data to recalibrate policy over time. Otherwise, policymakers are just throwing darts in the dark and hoping they land on public health. More importantly, any move must acknowledge the trade-offs. Formal food manufacturers are already under scrutiny. They are visible, auditable, and arguably the only part of the system that can be nudged toward compliance. Penalizing them without fixing the regulatory vacuum in the informal sector is a recipe for consumer substitution, not healthier diets. This is not a defense of processed food. This is a defense of coherent policy. If certain nutritional elements are now considered threats to national health, then tax them—everywhere, not just where it is convenient. Use science. Use data. Consult broadly. And stop pretending that punitive taxation is reform. It is not. At best, it is a tool. But without strategy, it is just a blunt object wielded in a dark room. Pakistan does not need more taxes disguised as concern. It needs a real national nutrition policy—one that is dynamic, adaptive, and grounded in evidence, not optics. Taxing taste, without strategy, will only entrench the very problem it claims to fix.
Express Tribune
7 days ago
- Health
- Express Tribune
A costly addiction
Listen to article Pakistan is paying a steep price for tobacco consumption. Each year, tobacco claims 164,000 lives and drains the economy of nearly Rs700 billion in healthcare costs and productivity losses. But, no matter how regrettable these numbers are, tobacco also contributes significantly to the national exchequer through taxes, creating a moral and fiscal dilemma for policymakers. This contradiction lies at the heart of Pakistan's tobacco control struggle. On one hand, increased taxation is the most effective measure to reduce tobacco consumption -— especially among youth and low-income groups — and to prevent the onset of lifelong addiction. On the other hand, the tobacco industry remains one of the top contributors to FBR, particularly through Federal Excise Duty. This makes the government understandably cautious about disrupting a major source of income amid financial constraints. However, the revenue generated from tobacco — while substantial — is dwarfed by the long-term economic toll of tobacco-related diseases. From cancer and heart disease to chronic respiratory illnesses, the burden on our already struggling public health system is immense. As World No Tobacco Day approaches on May 31, WHO has rightly urged Pakistan to adopt urgent tax reforms that prioritise public health. This doesn't mean an overnight collapse of the industry, rather a structured increase in taxes across all tobacco products, without exemptions or loopholes. Gradual yet decisive reforms can reduce consumption, continue to generate revenue in the short term, and significantly reduce long-term health costs. The goal should not be to kill an industry overnight, but to transition away from dependence on one that thrives off addiction. Part of the revenue generated through higher tobacco taxes can and should be ring-fenced for health and education spending, especially tobacco prevention programmes targeting youth.
Business Recorder
28-05-2025
- Business
- Business Recorder
WHO asks FBR to reassess, boost tobacco tax policy
ISLAMABAD: The World Health Organization (WHO) has strongly recommended the Federal Board of Revenue (FBR) to reassess and strengthen tobacco tax policy, including regular Federal Excise Duty (FED) rate adjustments and tighter controls on production timing and brand mix manipulation. In this regard, the WHO has submitted its budget proposals to the FBR for 2025-26. According to the WHO's proposals received at the FBR, the lower-than-expected tax revenues during the first nine months of 2024–25 cannot be credibly attributed to increased illicit trade, as claimed by the industry. Instead, the evidence points to a strategic shift in the sales mix toward lower-taxed economy brands—enabled by the stockpiling of higher-taxed premium brands in the final quarter of 2023–24—as the primary driver of reduced revenue performance. Coupled with the absence of any adjustment to FED rates despite a 26% rise in inflation, these factors have led to a significant decline in the average effective tax per pack. Highlighting policy issue, WHO pointed out since February 2023, the Federal Excise Duty (FED) rates on cigarettes have remained unchanged. During this period, overall inflation has increased by 26%, while the tobacco industry has raised the retail price of its most sold brand by only 10%. The FBR has been informed that the revenue collection from cigarette taxes grew by just 7.4% compared to the same period in 2023–24—below expectations. This limited growth is partly driven by an industry strategy that has shifted the sales mix toward economy brands, which are taxed at a significantly lower rate (Rs 101 per pack) compared to premium brands (Rs 330 per pack). This shift in the sales mix during the first nine months of the current fiscal year was further enabled by the additional production and stockpiling of premium brands in the last quarter of 2023–24—a typical industry tactic to undermine taxation policy. Although the industry attributes weaker revenue performance to increased illicit trade-claiming it disproportionately affects economy brands—official data shows that production of economy brands has actually increased by nearly 30% since last year, with total cigarette production up by 22%. This clearly contradicts the industry's narrative. Therefore, the modest growth in FED revenues is more plausibly explained by the absence of excise rate adjustments and a deliberate shift by the industry away from premium brands during the first nine months of the current fiscal year. This shift was facilitated by the stockpiling of premium brands in the final quarter of FY 2023–24, just before July 2024. As a result, both the production shift in the current fiscal year and the frontloading of premium brand output in the previous quarter have contributed to a decline in the average effective FED rate per pack. The WHO added that the inflation-adjusted FED rates for both economy and premium cigarette brands—one of the key explanatory factors behind recent lower-than-expected revenue performance. Since the FED rates have not been adjusted in line with inflation, their real (inflation-adjusted) values have declined. To maintain the purchasing power of the February 2023 FED rates, FBR would have needed to raise the FED rate for the economy segment to Rs 127 and for premium cigarettes to Rs 416 per pack. This lack of adjustment is estimated to have caused a revenue loss of approximately Rs 82 billion over the last two fiscal years. Although overall cigarette production increased by nearly 22 percent, reaching almost 28 billion sticks in the first nine months of FY 2024/25 compared to the same period in 2023/24, production of premium brands declined sharply by 53.4%. This significant drop in premium brand output is a key factor contributing to the below-inflation growth in FED revenues, as it has led to a reduction in the average FED rate per stick over the same period. Contrary to the tobacco industry's claims, the performance of cigarette tax revenues did not decline following the FED rate increase in February 2023. On the contrary, revenues from this source rose significantly in FY 2023–24. The FBR collected Rs237 billion in FED revenue, exceeding the revised target of Rs 205 billion—an increase of approximately 15.7%. Remarkably, in FY 2023–24, Pakistan recorded the lowest cigarette production in its history alongside the highest-ever collection of FED from the tobacco sector, WHO added. Copyright Business Recorder, 2025
