ISLAMABAD — The local beverage industry has formally approached the Federal Board of Revenue (FBR) and the Ministry of Finance with a proposal to slash the Federal Excise Duty (FED) on aerated waters from 20 percent to 15 percent, promising a significant revenue boost in return.
In a detailed letter, the Beverages Advisory Foundation (BAF) guaranteed that a lower tax rate would expand the formal tax base, generating an additional Rs8 billion in gross tax revenues in the first year alone and securing a cumulative gain of approximately Rs63 billion over a three-year period.
The advisory body argued that the aggressive tax hikes implemented in recent years have backfired, driving consumers toward the undocumented sector. According to the BAF, when the FED stood at a lower rate of 13 percent prior to the 2023–24 fiscal year, the beverage sector enjoyed a 14 percent annual growth in volume and a 23 percent surge in tax revenues, with documented companies capturing 90 percent of the market share. However, after the government hiked the duty to 20 percent in 2023, growth ground to a halt, and illicit, undocumented manufacturers expanded their market share to 20 percent while contributing a meager 5 percent to FED collections.
To incentivize the policy shift, the industry offered a performance-based guarantee, suggesting that if the projected revenue targets are not met by June 2027, the government can freely revert the FED back to its current 20 percent rate.
Under the proposed 15 percent framework, the industry projects total tax collections to hit Rs185 billion in FY2026–27, marking an Rs18 billion increase over the current status quo baseline of Rs167 billion. This is driven by an expected 16 percent volume rebound as the documented sector recovers its market share to 88 percent. By FY2028–29, the BAF forecasts combined sales tax and FED revenues will reach Rs238 billion, outperforming the current tax structure’s trajectory. Over the three-year outlook, cumulative collections are projected to reach Rs633 billion, comfortably beating the Rs570 billion expected under the current high-tax regime.
The BAF further emphasized that the relief would not merely pad manufacturer margins but would instead be funneled into market expansion, distribution networks, and trade activation. By narrowing the price gap between legitimate and tax-evading producers, the measure aims to eliminate the financial incentives for smuggling and illicit manufacturing, effectively pulling more businesses into the formal economy.
The proposal comes at a critical fiscal juncture, with the federal budget for the upcoming fiscal year scheduled for announcement in the coming days. The budget rollout follows the National Economic Council’s (NEC) scheduled meeting on June 3 to approve a consolidated national development program exceeding Rs3.5 trillion, alongside a macroeconomic framework targeting a 4.1 percent economic growth rate and capping inflation at 8.5 percent for FY2026–27.
