The aerated beverage industry in Pakistan severely impacted by the imposition of another 7% Federal Excise Duty (FED) in the February 2023 mini-budget. This has led to a significant drop in volume, estimated to be around 35% – 40%. The total FED on the industry has now reached an unsustainable 20%, marking an increase of over 50% from the previous rate of 13%. The adverse effects of this high tax rate felt throughout the manufacturing chain, with thousands of expected job losses.
If these regulatory challenges persist, companies may even be forced to consider shutting down their factories, resulting in a loss of corporate and income revenue for the government, which is estimated to be between PKR 6-8 billion annually in terms of FED collection.
Despite being one of the highest tax industries in the world, the Pakistan beverage industry has actively contributed to the country’s Forex reserves. It has invested an estimated $200 million, aiming to improve the Forex situation during a time of shortage. However, the recent measures taken by the government have now hindered revenue collection from this industry, negatively impacting the government’s financial position.
The State Bank Board of Directors’ 2022-2023 Half Year Report reveals a negative growth trend across various sectors, including a significant decline in the beverage industry. Between H1 FY22 and H1 FY23, the industry has experienced a contraction from 5% to negative (-) 8.3%.
The adverse economic consequences of these measures have become increasingly evident and have garnered the attention and concern of trade bodies such as the Pakistan Business Council, American Business Council, and several Chambers of Commerce. These associations presented their recommendations to the Senate committee Chairman and Convener on Finance and Revenue, Senator Saleem Mandviwalla.
In a consultative session held on May 23, 2023, Coca-Cola also participated and raised concerns on behalf of the industry. They argued that the taxes imposed in February 2023 were discriminatory, as they were not based on per-cap consumption of sugar. Despite the industry’s relatively low sugar consumption, it has disproportionately taxed.
The beverage sector prides itself on its transparent and compliant operations and urges the government to reconsider its taxation policy.
Specifically, the industry requests the immediate withdrawal of the 7% tax imposed in the mini-budget, as it initially presented as a temporary, stop-gap measure. Implementing a fair and broad-based tax regime would contribute to Pakistan’s economic stability and growth.