SOHAIL SARFRAZ
ISLAMABAD: The government is seriously considering reducing federal excise duty (FED) on beverages (aerated water) in the coming budget (2025-26) to attract foreign investment in this sector. Sources told Business Recorder on Monday that budget markers are finalising the budget proposal in this regard.
Foreign investors including Turkish investors have promised more foreign direct investment in beverage sector in case of tax relief in the coming budget (2025-26).
Leading global players with Turkish and Korean franchise investors have invested over USD 2 billion in Pakistan since 2018.
However, no new investments have been made since2023 due to the current fiscal environment. The industry contributes over Rs 175 billion in taxes annually (FED, GST, income tax, super tax) - one of the highest taxed sectors.
Both top multinational companies received High Tax Payer Awards from Prime Minister.
During recent meetings between the finance minister and the beverage industry, foreign investors are urging the government to reconsider the high tax burden on the beverage industry in the upcoming federal budget. They argued that the current taxation structure is stifling growth, discouraging investment, and pushing up consumer prices.
The finance minister has been informed that unprecedented hike of FED from 13 percent to 20 percent in 2023 resulted in a double-digit volume decline over two consecutive years (2023–2025); industry reverting to 2018 volume levels; 60 percent plant capacity utilisation, despite strong infrastructure and historical growth; investment of USD 300 million has been placed on hold since March 2023.
Moreover, consumer affordability has been hit, worsening demand in a price-sensitive market. The effective tax burden now exceeds 38 percent (20 percent FED plus 18 percent GST). The industry has promised the government lowering FED to 15 percent will unlock PKR 38 billion in additional tax revenue in 2025-2027 compared to continuing with 20 percent.
Beverages are highly price sensitive, hence excessive taxation reduces consumption, leading to net revenue loss, not gain. A healthier industry revives over 16 backward and forward-linked sectors, from transporters to advertising, tourism, and retail and sustained decline will risk further job losses and shuttering of local suppliers; recovery will support ~500,000 households across the ecosystem, FBR received data from beverage industry. The tax rationalisation can restore investor confidence and reinitiate USD 300 million with installed FDI. Inaction risks long-term disinvestment and negative signaling for other industries.
The proposal aligns with the prime minister’s directives from last year to support industrial revival, ensure stable revenue streams, and encourage exports and FDI. The rationalised rates on aerated waters allow policymakers to diversify fiscal revenue without overburdening a single sector, data communicated to the FBR revealed. The beverage industry in Pakistan is not seeking subsidies - only fair, growth-aligned taxation. A revision to 15 percent FED is essential to transition from economic erosion to recovery, unlocking jobs, investments, and sustainable revenue streams for the government. Without this course correction, the government risks repeating the fiscal and economic setbacks of the last two years.
According to industry stakeholders, the beverage sector, one of the largest contributors to revenue through FED and sales tax—is now facing unsustainable pressure. Calls for a more investment-friendly tax policy are gaining momentum as Pakistan seeks to attract FDI and stabilise the economy. Investor groups have emphasied that a balanced tax framework would not only boost industrial growth but also create jobs and ensure long-term revenue sustainability.
