Beverage industry: FTO endorses govt’s proposal for Rs60bn additional taxes

ISLAMABAD: The Federal Tax Ombudsman (FTO) has strongly endorsed the government’s proposal to impose additional taxes of Rs60 billion on the beverage industry under contingency taxation measures.

The FTO office in its budget proposals for 2022-23 had proposed to the Federal Board of Revenue (FBR) to substantially raise the Federal Excise Duty (FED) on beverages, i.e., from 13% to 20% including soft drinks, energy drinks, packaged juices, sports drinks, sweetened coffee drinks, sweetened iced tea, and flavoured milk, etc.

However, the budget markers had rejected the said proposal during the last budget preparation exercise for 2022-23. The FTO office had repeatedly proposed the FBR to raise the FED on beverages and tobacco.

Sources told Business Recorder that the proposal was drafted during the last budget but was dropped before finalisation of the Finance Act 2022.

The government has committed to activate contingency measures as needed, including: (i) immediate increase in GST on fuel, as a prelude to reaching the standard rate of 17%; (ii) further streamlining of GST exemptions including on sugary drinks (PRs 60 billion) and other unwarranted exemptions such as those benefiting exporters; and/or (iii) increasing Federal Excise Duty on Tier I and Tier II cigarettes by at least PRs 2/stick with immediate effect to raise at least another PRs 120 billion in revenue.

According to the FTO office, there is a direct and strong association between the consumption of sugar-sweetened beverages (SSBs) and obesity and non-communicable diseases (NCDs) such as diabetes, hypertension, and cardiovascular illnesses. SSBs include any liquids that are sweetened with various forms of added sugars.

Multiple policy interventions have been identified by global health bodies like American Heart Association, WHO, and World Bank, which include but are not limited to increased taxation. Higher taxes, are advocated as potential policy tools to reduce the consumption directly.

Evidence from a number of countries has shown it to be effective strategies where a documented decrease in consumption of SSBs is seen and is expected to reduce the burden of NCDs. Examples include South Africa, Mexico, Chile and Saudi Arabia. These countries documented and implemented higher taxes on SSBs aiming to address reducing obesity and its related disease, and the policy has shown a positive effect on the health indications in these countries.

In the broader national interest, the federal government may increase the FED on the aerated waters, energy drinks containing added sugar or other sweetening matter or flavoured from 13% to 20% of the retail price.

It is also proposed that at least 20% FED may also be levied on SSBs including soft drinks, energy drinks, sport drinks, sweetened coffee drinks, sweetened iced tea, flavoured milk, etc. To achieve this, amendments are proposed in the entries at Sr Nos 5 and 6 in the First Schedule of the Federal Excise Act 2005, the FTO added.

Copyright Business Recorder, 2022