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Does Pakistan Need a `Sin Tax` on the Tobacco and Sugar Industries?

15 February, 2019

Worries about unhealthy habits combined with a need to raise more money for the national health budget could soon lead to a new tax being introduced in Pakistan.

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It is reported that the Government will hold a series of meetings to discuss whether to tax tobacco products as well as food and drink with high sugar levels.

Commonly labelled as a sin tax, this would see a figure that has yet to be specified added onto the price of these products. Does the country need a tax like this, and what effect could it have overall?

 

The Financial Situation

Pakistan has been spending an average of 0.5% to 0.8% of its GDP on the national health budget over the last ten years. This puts it well below the benchmark from the World Health Organisation. The recommendation from the WHO is that a minimum of 6% of the GDP should be used for health purposes.

The proposed sin tax could help to divert a substantial sum of extra money to the health services. This would be extremely good news for hard-pressed hospitals that urgently need more funds to meet the levels of demand. In particular, this may help to address the severe shortages of staff and equipment that have been reported. This tax may affect the profits of certain companies, the national economy and the Pakistani rupee, which performed poorly in 2018 and lost over 25% of its value. Government policy, employment figures and imports vs exports are factors that influence national currencies, as explained by the IG group on their forex trading site. More volatility will encourage forex traders from all over the world to keep a close eye on the rupee.

The Health Situation

Dr Asad Hafeez is the director general of the NHS Ministry. He is quoted as saying that this tax could help to reduce the number of young people who start smoking in the country. Many current reports covering the sin tax idea suggest that some 1,500 people take up this damaging habit in Pakistan every day, although this number seems to come from a study by the Aga Khan University Hospital back in 2004.

In a similar vein, there are also concerns about the high level of sugary foods and drinks in the country. Worrying figures revealed by Professor Dr AH Amir of the Hayatabad Medical Complex suggest that 51% of the population of the country is currently obese, which is 19% higher than the overall global rate.

Source: Pixabay

The Overall Impact

There are already close to 50 countries around the world that have introduced a tax on tobacco. Numerous academic studies have been carried out to work out the overall effect of bringing in higher taxes on tobacco in countries as diverse as South Africa, China and Vietnam. The World Bank cites Moldova as an example of a country where tobacco taxation has been successfully introduced.

The WHO has produced a document called The Economic and Health Benefits of Tobacco Taxation. In this study, they called tobacco taxation a win-win policy. This is because it can be an important source of Government funding as well as help to reduce the number of new smokers.

In the same way, it has been claimed that taxing products with high sugar levels will bring both economic and health benefits. It has even been suggested that this could increase productivity levels, as healthier workers will be fitter and more focussed.

Of course, it is impossible to fully predict the ongoing economic and social impact of any new tax. However, there are numerous reasons for believing that a well-planned, sensible sin tax in Pakistan could be beneficial to the country as a whole.


 
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