Health tax on bakery items, confectionaries, drinks proposed

ISLAMABAD: A health ministry report has proposed the government slap a health tax on hundreds of processed and ultra-processed food and drink products (UPPs) known as bakery and confectionary items with a rate of 20 percent in the upcoming budget for 2025-26.

On certain items, where the Federal Excise Duty (FED) already existed at the rate of 20 percent, it is proposed to be jacked up to 40 percent in the next budget.

It also proposed to jack up the rate of tax up to 50 percent within a few years by 2028-29 in order to discourage consumption of unhealthy products.

“A complete data of tax collection through these measures may be maintained and health spending may be rateably increased based on the estimated increase in revenues from the proposed health taxation. Every new or additional health taxation measure should aim at providing double public health benefits of reduction in consumption of unhealthy food and drinks and, at the same time, generating more revenue to provide fiscal space for more health spending to promote healthy Pakistan initiative of the government,” a report titled “Sustainable Ultra Processed Food and Drinks Products Taxation Policy for Public Health” prepared and shared with Ministry of Health and holding discussions with Ministry of Finance and FBR stated for preparation of next budget for 2025-26.

On aerated waters, containing added sugar or other sweetening matter or flavored and Aerated waters if manufactured wholly from juices or pulp of vegetables, food grains or fruits and which do not contain any other ingredient, indigenous or imported, other than sugar, coloring materials, preservatives or additives in quantities prescribed under the West Pakistan Pure Food Rules, 1965, the existing FED rate stands at 20 percent and it is now proposed to be doubled at 40 percent in the next budget and enhance up to 50 percent by 2028-29.

On Sugary Fruit juices, syrups and squashes, waters whether or not containing added sugar or artificial sweeteners excluding mineral and aerated water, the existing FED stood at 20 percent and it is proposed to be slapped at rate of 40 percent in the next budget and then enhanced up to 50 percent by 2028-29.

The report proposes inserting new products into the FED list and slap 20 percent FED in the next budget, including products consisting of milk’s natural components with the addition of sugar or other sweeteners, not expressed or included elsewhere, sausages and similar products made from meat; food preparations based on meat including dried, salted, or smoked meat or a by-product of meat, offal or animal bone, confectionery including any type of chewing gums, candies, chocolates, caramels, sprinkles, mixes and pastes for the preparation of bakery, pastry, or biscuit products, cereal-based products obtained by puffing or roasting with additives like corn flakes, flakes or cereals with additives, bakery, pastry, or biscuit products, sweet cookies, wafers, empty seals of a kind used for medicines, sealing wafers, dried pastes of flour, starch or starch, in sheets, and similar products, jams, jellies, and marmalades, fruit or other fruit purees and pastes, obtained by cooking, with or without added sugar or other sweeteners, fruit, vegetable or nuts and other edible parts of plants, industrially prepared and preserved, including with added sugar or other sweetener , sodium and/or trans-fat like any types of preserved butters, fruit etc. tins and chips, ice creams, flavored or sweetened yogurts and frozen dessert, preparations for sauces and prepared sauces like soy sauce, ketchup, mayonnaise, and other prepared sauces and preparations for sauces, Any type of protein concentrates, protein hydrolysates, yeast autolysates, puddings, desserts, baking improvers, or mixtures of artificial sweeteners and any other industrially processed food or drink product that contains added animal or vegetable fat, any type of sweetener and/or sodium additive. On all these items, it is proposed that the FED may be jacked up to 50 percent by 2028-29.

Health taxation policy of Pakistan may pay heed to the growing international trend especially in Colombia, Saudi Arabia and World Bank’s recommendations for Pakistan. Taxation may be used as a tool to promote public health as is being done in the rest of the world. Excise duty is a preferred option for any special health taxation measure on UPPs. These are industrially formulated and ultra-processed processed foods with additives such as any type of sugar, oils, fats, salt, antioxidants, stabilizers, and preservatives. At the same time, it is recommended that unsweetened packed milk, plain bottled water, packed fresh fruits and vegetables may be declared zero rated for the purposes of excise duty and sales tax in order provide healthy choices and alternatives to the people for general improvement in dietary habits.

Pakistan does not have any special tax on UPPs beyond beverages. Special and significant health tax may lead to reductions in consumption of unhealthy industrial products. Taxation measure has potential to reduce prevalence of obesity, type 2 diabetes, stroke, dental caries, cardiovascular disease and blood pressure. Importantly, most estimates suggest that health tax would save significant health care expenditures. Young people between 18-40 years are the largest consumers of SSBs and other UPPs in Pakistan, 88 and will be the greatest beneficiaries of health tax as the direct impact of such tax. In the long run, reduced UPP consumption and non-communicable disease (NCDs) will lead to individuals spending less on medical costs and earning more from increased years of productive life. This will have significant impact on the national economy, it added.