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Pakistan’s aerated beverage industry is grappling with a significant decline in volume, estimated at 35% to 40%, following the introduction of a 7% Federal Excise Duty (FED) in the February 2023 mini-budget. This latest tax increase 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 reverberating throughout the manufacturing chain, with an expected loss of thousands of jobs. If these regulatory challenges persist, businesses may be compelled to consider shutting down their operations, resulting in a further blow to government revenues, estimated at an annual loss of PKR 6-8 billion in FED collection.

The beverage industry in Pakistan is already burdened with one of the highest tax rates globally, with a 20% FED that surpasses the average levy imposed on the food and beverage sector. Despite these challenges, the aerated beverage industry has stepped up as a key 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 collections 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. From the first half of the fiscal year 2022 to the same period in 2023, the beverage industry alone has contracted from 5% to a significant negative growth rate of -8.3%.

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. These associations recently 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, Coca-Cola, representing the industry, voiced concerns regarding the discriminatory nature of the tax applied in February 2023. The tax does not consider per-capita sugar consumption, resulting in an unfair burden on the beverage industry, which only accounts for approximately 6% of the country’s sugar consumption.

The beverage sector, which operates transparently and in compliance with regulations, now urges the government to reassess 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, stop-gap measure. The industry maintains that 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 Coca-Cola and other beverage manufacturers underscore the urgent need for a comprehensive review of the taxation policy affecting the industry. Striking a balance between tax obligations and recognizing the substantial investments made by these companies is vital to creating a conducive business environment and ensuring the long-term sustainability of Pakistan’s beverage sector.