Taxes galore: Pakistan to double sugar taxation as part of effort to secure IMF bailout funds

18-Jun-2019 - Last updated on 18-Jun-2019 at 23:52 GMT

The Pakistani government will be doubling the country’s sugar tax to 17% as well as implementing a raft of other levies. ©Getty Images

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The Pakistani government will be doubling the country’s sugar tax to 17% as well as implementing a raft of other levies, as revealed in the country’s recent Federal Budget 2019-20 announcement.

At present, sugar in the country is subject to an 8% sales tax, which led to a tax collection of some PKR18bn (US$115mn) for the incumbent Pakistan Tehreek-e-Insaf (PTI) government, but this is ‘lower than its actual potential’, according to Pakistani State Minister of Revenue Hammad Azhar.

Presenting the budget at the National Assembly, Azhar said that: “To maximise this tax gap and to harmonise its rate with other items, it is proposed that the sales tax rate on sugar may be enhanced to 17%.”

According to Geo.tv, estimates based on this measure are that sugar prices will increase by some PKR3.60 (US$0.023) per kilogramme.

Other food and beverage related taxes include 17% taxes to be implemented for ghee and poultry. Carbonated drinks and packaged non-carbonated sugary-flavoured juices, syrups and squashes will also see federal excise duties of 5%.

The budget overall set a bold tax revenue target of PKR 5.55tn (US$36.5bn), which would be a jump of some 30% as compared to the previous year’s budget.

“Our main objective will be to increase tax collections,” said Azhar, adding that only two million out of Pakistan's 210 million population file income tax returns.

“In this new Pakistan, we have to reform our tax collection system to move forward,” he told Nikkei Asian Review.

One of the major reasons for this is Pakistan’s provisional agreement with the International Monetary Fund (IMF) to secure a total of US$6bn in bailout funds – on the condition that measures are implemented to reduce increasing deficit in the budget.

According to Gulf News, Pakistan’s total debt currently stands at US$97bn.

More on the Pakistani Federal Budget 2019-20

That said, not all the upcoming F&B-related taxation changes in Pakistan will be harsher on income tax payers.

Azhar also announced that sales taxes on concentrated milk (and milk powders) will be reduced from 17% to 10%.

“Similar [dairy] products are subject to varied tax rates. Therefore in order to remove this anomaly, it is proposed to tax both milk and cream, concentrated, and unsweetened / unflavoured at 10% instead of current 17%,” he said.

Additionally, sales taxes on food and beverages from food service outlets and caterers have been cut from 17% to 7.5%.

Documentation systems, likely in tandem with Azhar’s mention of tax collection system reformation, are being tightened via a new governmental requirement for all retailers (with shops above 1,000 square feet) to integrate their points of sale with the Pakistani Federal Board of Revenue’s systems.