KARACHI: The food sector demanded the government to end the discriminatory tax on the beverages producers in the upcoming budget for the financial year 2021-2022 to promote the investment in the country.

Food and beverage processing industry is the second largest in Pakistan after textiles. It contributed to foreign direct investment in the tune of nearly $50 million in the current financial year of 2020-21 as per data of State Bank of Pakistan with 23 percent growth than the previous financial year.

However, the heavy tax burden on the beverage sector is discouraging the investment pace due to taxation instability coupled with the changing socio-economic environment.

It should also be taken into account that the beverages and bottled water industry has been one of the largest foreign direct investors and taxpayers in Pakistan for many years. The industry also directly supports over 20 other industries, as well as a very large countrywide network of distributors and retailers, including thousands of small shopkeepers.

The two leading players in the beverage industry, Coca-Cola and PepsiCo, alone contribute around Rs 70 billion annually to government revenues through taxation, and employ over 25,000 people directly and another 100,000 people indirectly, it has been learnt.

While the industry had already invested more than $600 million in the country since the last few years, it continued to bear the brunt of a consistently increasing taxation and deteriorating growth rate, sources in the industry said.

Since 2018, the beverage industry has already been a discriminatory target of increased taxation in the form of FED increase from 11.5 percent to 13 percent. At the same time, industry volume growth had plunged to negative while increased taxation was putting an inflationary pressure on consumer prices and reducing the industry’s overall tax contribution to the government revenue with falling sales volumes, they added.

While major reforms are required to enhance Pakistan’s tax revenue collection, a legally compliant and documented sector that is already experiencing double-digit negative volume growth should not be over-stressed with additional burden. For instance, bulk consumers of sugar like bakeries remain part of undocumented economy, paying little or no tax.

To keep making headway, taxation policies need to rejuvenate growth in the industry as this is only manageable by ensuring affordability for consumers while maintaining a business environment that encourages further investment.

Affordability is directly impacted by the taxation policy and Pakistan currently has one of the highest indirect taxes on the industry at 30 percent (GST 17 percent & FED 13 percent), coupled with 50 percent plus hike in key raw material items and double-digit inflation.