In a bid to discourage the purchase of unhealthy foodstuffs and beverages, the Ministry of National Health Services (MNHS) has suggested that a ‘health tax’ be placed on a slew of processed food and drinks. Reports indicate that the tax rate could sit at 20 percent and may be implemented in the fiscal year (FY) 2025-26’s budget. 

 

Taxes on goods that already have a 20 percent Federal Excise Duty (FED) may witness tax rates up to 40 percent. Bakery items and confectionery products also fall under the umbrella of the proposed health tax.

 

The MNHS suggests that the health tax on processed goods be raised incrementally until it hits 50 percent by FY 2028-29.  Proceeds from the tax could also assist authorities in consolidating Pakistan’s cash-strapped fiscal position.

 

Credible reports indicate that the increase in revenues could allow lawmakers to increase public expenditure on health, allowing the general public to benefit from a greater level of governmental provision of healthcare services. 

 

The health tax could provide citizens with a double benefit as it will reduce the quantity demanded for ultra-processed food and drinks - ultimately reducing the incidence of diabetes and heart diseases. Moreover, individuals consuming harmful processed goods will indirectly foot the medical costs for the general public.

 

However, companies that manufacture these goods may witness a substantial fall in their sales volume if such a tax is introduced. This could detrimentally impact these firms’ revenues and profit margins. 

 

As per reports, the FED on certain aerated waters sits at 20 percent. However, recommendations have been made to revise the rate up to 40 percent initially, with a second increment that will bring the rate up to 50 percent by FY 2028-29. For context, aerated water refers to water that has been artificially impregnated with a large amount of gas.

 

Likewise, the current FED of 20 percent on squashes, flavored water, syrups and sugary fruit juices could be revised up to 50 percent by FY 2028-29. Not all goods have a FED levied upon them. However, a report submitted to the MNHS has recommended that a levy of at least 20 percent be introduced on ultra-processed food products.

 

Reports reveal that the 20 percent FED could be levied on confectionary products such as chocolates, candies, and chewing gum, to name a few. Bakery items such as sweetened corn flakes, cookies and nuts with sugar could face a 20 percent duty as well.