The government under the IMF pressure has imposed new taxes and increased the rates in some cases. One such case isthe imposition of FED at 10 percent on the juice industry, which could adversely impact the entire value chain.
The fruit juice industry is developing the value chain by using pulp and puree from fruits produced in the agriculture sector. In most agriculture produce; wastage is about 30-40 percent in the post-harvest process alone. Utilizing pulp reduces the wastage of fruits by improving the supply chain from farm to markets. A tax on juices would hurt the value chain, resulting in a slowdown in the localization of the pulp market.
With the influx of formal players in fruit juices in the past few years, there are a number of players that have ventured into pulp businesses. One player in the mango pulp making has estimated that the wastages of mango in Pakistan could be close to $1 billion per year. The king of fruit is highly perishable and is being wasted on farm in the harvesting process or in the post-harvest process—from when it is in storage to when it is enroute to the market. In order to reduce the waste, the pulp market needs to be developed, for which there also needs to be domestic demand that will feed the juice industry. The pulp market can also be scaled up to export. One player is already exporting to Europe.
A FED in fruit juices will impact demand across the value chain, and the progress in the pulp market could be significantly stalled. In 2018-19, when 5 percent FED was imposed on fruit drinks, there was a case of sharp decline in the consumption of juices in the formal segment- sales were down from Rs53 billion to Rs41 billion in 2019-20. Higher indirect taxes also incentivize the informal juices market where the quality check is absent. Meanwhile, the government doesn’t collect optimal taxes on these.
Later when the FED was removed, the fruit juice market jumped back again and touched a new high of Rs59 billion in 2021-22.The tax collection from GST alone in 2021-22 was higher and almost fully covered the loss from FED. With the imposition of FED to 10 percent now, the industry expect sales to fall below Rs50 billion mark, which will also impact tax collection of the government.
This will hurt plans of pulp localization. Juice companies are gearing up to utilize locally available fruit which will further get stalled. One player has localized mango, apple guava and know. The company is in the process of shifting grapes and peaches locally and fears that higher FED may hamper the plans. The government may need to consider this before the parliamentary approval. Meanwhile, the Senate Standing Committee has proposed to reduce the FED to 5 percent.
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