Health tax proposed on bakery items, confectionery, beverages

• FED may rise from 20% to 50% by 2029.
• Tax aims to reduce UPP consumption nationwide.
• Ministry suggests higher duties to curb NCDs.

ISLAMABAD: The Ministry of National Health Services has proposed the imposition of a health tax on hundreds of processed and ultra-processed food and drink products, including bakery and confectionery items, at a rate of 20% in the forthcoming 2025–26 federal budget, The News reported.

For certain products already subject to a 20% Federal Excise Duty (FED), the report recommends raising the rate to 40% in the next fiscal year.

The proposal also outlines a phased increase in taxation, suggesting the rate be gradually raised to 50% by 2028–29, as part of efforts to discourage the consumption of unhealthy foods and beverages.

“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," 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 Federal Board of Revenue (FBR) stated for preparation of next budget for 2025-26. 

"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,” it said.

On aerated waters containing added sugar, sweetening agents, or flavouring, including those manufactured wholly from the juices or pulp of vegetables, food grains, or fruits, and containing only permissible additives as specified under the West Pakistan Pure Food Rules, 1965, the current Federal Excise Duty (FED) stands at 20%. The report proposes increasing this rate to 40% in the upcoming 2025–26 budget, with a further hike to 50% by 2028–29.

Similarly, on sugary fruit juices, syrups, squashes, and flavoured waters (excluding mineral and aerated water), the current FED of 20% is proposed to be raised to 40%, followed by a gradual increase to 50% by 2028–29.

The report also recommends introducing a 20% Federal Excise Duty (FED) on a wide range of additional ultra-processed food products in the next budget. These include milk-based products containing added sugar or sweeteners; processed meat items such as sausages and foods based on dried, salted, or smoked meat; and confectionery products like chewing gum, candies, chocolates, caramels, and sprinkles.

Further, the list covers bakery and pastry mixes, biscuit pastes, sweet cookies, wafers, and cereal products obtained by puffing or roasting — including sweetened corn flakes and other additive-laced cereals. It also includes jams, jellies, marmalades, fruit purees and pastes (prepared with or without added sugar), as well as preserved fruits, vegetables, and nuts with added sugar, sweeteners, sodium, or trans fats.

Other items proposed for inclusion are ice creams, flavoured or sweetened yoghurts, frozen desserts, and preparations for sauces and condiments such as soy sauce, ketchup, mayonnaise, and other commercial sauces. The proposal extends to protein concentrates, hydrolysates, yeast autolysates, puddings, dessert mixes, baking improvers, and artificial sweetener blends.

In essence, any industrially processed food or drink product containing added animal or vegetable fats, sweeteners, sodium, or other artificial additives would fall under the proposed taxation framework. For all such items, it is recommended that the FED be progressively increased to 50% by 2028–29.

Health taxation policy of Pakistan may pay heed to the growing international trend, especially in Colombia, Saudi Arabia and the 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 foods with additives such as any type of sugar, oils, fats, salt, antioxidants, stabilisers, 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 to 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 the potential to reduce the prevalence of obesity, type 2 diabetes, stroke, dental caries, cardiovascular disease and high blood pressure. Importantly, most estimates suggest that a 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, and will be the greatest beneficiaries of the 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 a significant impact on the national economy, it added.