ISLAMABAD: The federal government is weighing a reduction in federal excise duty (FED) on aerated beverages—commonly known as cold drinks—in the 2025–26 budget, in a move aimed at reviving foreign direct investment (FDI) in Pakistan’s beverage sector.
Budget planners are finalizing a proposal to roll back FED from the current 20% to 15%, a shift that foreign investors—particularly from Turkey—have indicated would unlock new investments. Since 2018, international beverage companies with Turkish and Korean franchise partners have poured over $2 billion into Pakistan’s market.
However, the lack of new FDI since 2023 highlights growing investor concerns. Despite the sector contributing over Rs175 billion annually in taxes—including FED, GST, income tax, and super tax—it remains one of the most heavily taxed industries in the country.
Multinational companies operating in the beverage space have been awarded by the Prime Minister for their tax contributions, but their recent meetings with the finance minister have underscored the negative impact of the 2023 FED hike from 13% to 20%. The move led to a double-digit drop in sales volumes for two consecutive years, reverting production to 2018 levels and bringing plant utilization down to 60%. A planned $300 million investment has been on hold since March 2023.
With a total tax burden exceeding 38% (20% FED plus 18% GST), consumer prices have surged, curbing demand in a price-sensitive market. Industry stakeholders argue that a reduction to 15% FED would stimulate consumption and could unlock an estimated Rs38 billion in additional tax revenue between 2025 and 2027—compared to maintaining the current rate.
They caution that excessive taxation is self-defeating, shrinking demand and ultimately reducing government revenue. The sector directly and indirectly supports over 500,000 households and 16 allied industries, including retail, logistics, tourism, and advertising. A sustained downturn could trigger job losses and supplier shutdowns.
Industry leaders stress they are not seeking subsidies, but a rational, growth-oriented tax structure. They argue that restoring investor confidence would revive stalled FDI, support economic recovery, and align with the Prime Minister’s industrial revival agenda.
Data submitted to the Federal Board of Revenue (FBR) reinforces the position that rebalancing the tax regime can diversify government revenue without overburdening a single sector. Stakeholders warn that failure to act could send a negative signal to global investors and hinder broader efforts to stabilize the economy.
