Developing agricultural value chains represents a prime opportunity in Pakistan’s economy, particularly in Punjab. One area that had been quietly growing was the creation of a value chain from fruit to pulp to juice production, until heavy taxation impacted the formal sector, according to a report published by Business Recorder on Tuesday.
Approximately 80 percent of fruit procurement and pulp and juice manufacturing occurs in Punjab. Recently, however, the industry has been in decline due to rising prices from inflation and increased taxation, the report stated.
Farmers are already under strain from the lack of wheat support, and the stagnation in other sectors only adds to their challenges. Ideally, the government should not directly support specific crops (as it does with wheat and sugarcane) but should instead facilitate private sector initiatives. The report highlights that the success of maize demonstrates how private sector financing and technical support can boost the farming economy. Additionally, an international company is aiding the growth of certain potato varieties to expand the chips industry, further illustrating the benefits of private sector involvement.
A similar trend was emerging in the juice industry. In 2022, the industry procured about 100,000 tons of mangoes, kinnows, apples, peaches, and guavas from farmers for pulp production. However, new taxation measures have reversed this progress, cutting procurement by half, Business Recorder stated.
In last year’s budget, the government imposed a 20 percent FED on juices, raising the total indirect tax incidence to 42 percent (including an 18 percent GST). This has led to a market contraction, with part of the formal sector being overtaken by illicit and inferior products, stunting the growth of formal value chains.
Farmers are suffering as formal fruit pulping and juice-making companies, which previously supported the value chain with financing and other assistance, have reduced their involvement.
The government is not seeing additional revenue, as the formal market size is shrinking. This year, total tax collection (GST + FED) is expected to be Rs15-16 billion. Without the sales decline, GST collection alone could have been Rs12 billion, potentially reaching Rs15 billion next year.
While the revenue impact on the government is minimal, the effect on the farming community is substantial. The federal government should consider removing the FED and assessing the impact, given the negligible opportunity cost. The benefits would accrue to Punjab and its farmers, so the provincial government should advocate for the abolition of the FED to their federal counterparts.
The fruit pulping and juicing industry has seen rapid development in recent years, with new manufacturers entering the formal market to meet growing demand. However, taxation has suppressed this demand, reducing industry capacity utilization to around 30 percent.
Processing in Pakistan is minimal, with over 90 percent of fruit consumed fresh, unlike developed markets where 95 percent of fruit is processed. Although the gap is significant, the market was heading in the right direction. The government should allow the sector to evolve, ensuring better fruit utilization, job creation, and export potential.
Some companies have already started exporting, and once they scale up and refine their products locally, they can expand exports further.
The Chief Minister of Punjab and the federal Finance Minister should seize this opportunity to support the sector.
