• FED may increase from 20% to 50% by 2029
  • The tax is intended to lower UPP consumption throughout the country
  • The ministry is suggesting higher duties to reduce NCDs.

ISLAMABAD: The imposition of a health tax on a wide array of processed and ultra-processed food and beverage items, which includes bakery and confectionery products, has been proposed by the Ministry of National Health Services. The proposed rate is 20% and would be introduced in the upcoming 2025–26 federal budget.

The report suggests that for particular items already subject to a 20% Federal Excise Duty (FED), the rate should be increased to 40% in the next fiscal year.

The proposal also details a phased increase in taxation, advising that the rate be gradually elevated to 50% by 2028–29. This is part of an initiative to discourage the intake of unhealthy foods and drinks.

A report, titled “Sustainable Ultra Processed Food and Drinks Products Taxation Policy for Public Health,” was prepared and shared with the Ministry of Health. Discussions are being held with the Ministry of Finance and the Federal Board of Revenue (FBR) for the preparation of the next budget for 2025-26. The report stated that complete data of tax collection through these measures should be maintained, and health spending should be increased based on the estimated increase in revenues from the proposed health taxation.

It was stated that every new or additional health taxation measure should aim to provide the dual benefits of reducing the consumption of unhealthy food and drinks while simultaneously generating more revenue. This would provide fiscal space for increased health spending to promote the government’s healthy Pakistan initiative.

The current Federal Excise Duty (FED) is 20% on aerated waters that contain added sugar, sweetening agents, or flavouring, including those manufactured entirely 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 report proposes increasing this rate to 40% in the upcoming 2025–26 budget, with a further increase to 50% by 2028–29.

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

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

The list also includes 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 encompasses jams, jellies, marmalades, fruit purees and pastes (prepared with or without added sugar), and preserved fruits, vegetables, and nuts with added sugar, sweeteners, sodium, or trans fats.

Additional items proposed for inclusion are ice creams, flavored or sweetened yogurts, frozen desserts, and preparations for sauces and condiments like 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.

Essentially, any industrially processed food or drink product that contains added animal or vegetable fats, sweeteners, sodium, or other artificial additives would be subject to the proposed taxation framework. It is recommended that the FED for all such items be progressively increased to 50% by 2028–29.

The health taxation policy of Pakistan may consider the growing international trend, particularly in Colombia, Saudi Arabia, and the World Bank’s recommendations for Pakistan.

Taxation may be utilized as a tool to promote public health, as is being done in other parts 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.

Concurrently, it is recommended that unsweetened packed milk, plain bottled water, and packed fresh fruits and vegetables be declared zero-rated for the purposes of excise duty and sales tax. This would provide healthy choices and alternatives to the public for general improvement in dietary habits.

Pakistan currently lacks any special tax on UPPs beyond beverages. A special and significant health tax may lead to reduced consumption of unhealthy industrial products.

This taxation measure has the potential to reduce the prevalence of obesity, type 2 diabetes, stroke, dental caries, cardiovascular disease, and high blood pressure. Crucially, most estimates indicate that a health tax would save significant health care expenditures.

Young individuals between 18 and 40 years are the largest consumers of SSBs and other UPPs in Pakistan and will benefit the most from the health tax due to its direct impact.

In the long term, reduced UPP consumption and non-communicable diseases (NCDs) will result in 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.