Fruit juice industry in peril, as FED hurts volumes, govt revenues plunge
The Pakistani juice beverage industry is home to a large, heavily monitored taxpayer base, has faced escalating taxation in recent years.
The 2023-2024 budget raised the Federal Excise Duty (FED) from 5% (plus 17% sales tax) in 2018-19 to 20% (plus 18% sales tax). Policymakers overlooked the combined impact of this increased taxation, a more than 50% rise in raw material costs, and inflationary pressures on prices. Instead of boosting overall tax revenue, this has led to a diminished tax contribution from beverage sector revenues to the national exchequer.
Prior to the recent hike in federal excise duty, the fruit juice industry was flourishing, with a turnover of approximately Rs 60 billion, investments totaling Rs 40 billion, and significant new job creation. From the consumer standpoint, heightened competition had broadened the product range to include healthier, sugar-restricted options. However, since the FED was implemented, the industry has faced significant growth setbacks. Sales have dropped, leading to a 40% reduction in volume, which has rippled through the industry. Many companies are now operating below full production capacity, and new investments have been delayed.
A particularly troubling aspect of the government’s taxation policy is its approach to lumping fruit beverages and packaged juices—including 100% fruit juices, nectars, and juice drinks—together for taxation. It’s essential to acknowledge the significance of these beverages in modern fast-paced lifestyles and diets; they provide essential nutrients, hydration, and convenience, helping consumers meet their daily nutritional needs.
To address these concerns, it’s crucial to differentiate between the various beverage categories. This could be implemented through front-of-package (FOP) labels and a tiered taxation system, which is standard practice in many countries worldwide. Furthermore, the government should reevaluate its taxation strategy across the beverage industry.
While meeting national tax goals is crucial, a more effective strategy might involve reevaluating the tax structure to broaden the overall tax base, rather than increasing taxes on already taxed industries. Eliminating the FED or introducing progressive taxation measures could rejuvenate the formal juice beverage industry and ensure that healthier options remain accessible to consumers. Additionally, the government should intensify regulations on the informal beverage sector to guarantee product safety and quality while effectively incorporating it into the tax system.
As we shift towards a preference for healthier products that don’t strain consumer budgets, it is crucial for the government to support the formal juice beverages industry. By tackling the issues that fruit growers and farmers face and regulating the informal juice sector, the government can not only increase revenue but also spur economic growth and ensure that consumers have access to a variety of juice drink options.
