The aerated beverage industry in Pakistan is facing a severe blow as volume plummets by an estimated 35% to 40% following the introduction of a 7% Federal Excise Duty (FED) in the February 2023 mini-budget. This latest tax hike has pushed the total FED on the industry to an unsustainable 20%, marking a staggering 50% surge from the previous rate of 13%. The repercussions are rippling through the manufacturing chain, with thousands of job losses expected. Should these regulatory challenges persist, businesses may be forced to consider closing operations, dealing another blow to government revenues, estimated to suffer an annual loss of PKR 6-8 billion in FED collection.
Already burdened with one of the highest tax rates globally, the beverage industry in Pakistan is grappling with a 20% FED, surpassing the average levy imposed on the food and beverage sector. Despite these challenges, the aerated beverage industry has emerged as a significant investor, contributing an estimated $200 million to bolster the country’s foreign exchange reserves during a time of Forex shortage. However, the recent tax measures have hindered the government’s revenue collection from this industry, leaving a negative impact.
According to the Half-Year Report for 2022-2023 published by the State Bank Board of Directors, several sectors, including the beverage industry, have experienced negative growth. The beverage industry alone has contracted from 5% in the first half of fiscal year 2022 to a significant negative growth rate of -8.3% during the same period in 2023.
The adverse economic consequences resulting from these measures have garnered attention from trade bodies such as the Pakistan Business Council, American Business Council, and various Chambers of Commerce. Recently, these associations presented their recommendations to Senator Saleem Mandviwalla, Chairman and Convener of the Senate Committee on Finance and Revenue. In a consultative session held on May 23, 2023, representatives from the beverage industry voiced concerns about the discriminatory nature of the tax imposed in February 2023. The tax fails to consider per-capita sugar consumption, resulting in an unjust burden on the beverage industry, which accounts for only approximately 6% of the country’s sugar consumption.
The beverage sector prides itself on transparent operations and compliance with regulations, and it is now urging the government to reevaluate its taxation policy. Specifically, the industry is calling for the immediate withdrawal of the 7% tax introduced in the mini-budget, as it was initially presented as a temporary measure. A fair and broad-based tax regime would not only alleviate the burden on the beverage industry but also contribute to Pakistan’s economic stability and foster growth.
The appeals made by beverage manufacturers highlight the urgent need for a comprehensive review of the taxation policy impacting the industry. Striking a balance between tax obligations and recognizing the substantial investments made by these companies is crucial for creating a conducive business environment and ensuring the long-term sustainability of Pakistan’s beverage sector.”