Under the aegis of the SouthAsia Forum a roundtable discussion titled "The Soft Drink Industry - An Overview" was held to take up the taxation issue applied on the Carbonated Soft Drink Industry (CSD) in the Country. The panel conducting the roundtable were Qudsia K. Khan, Editor-in-Chief & CEO, Financial Post, Syed Jawaid Iqbal, Chairman, SouthAsia Forum and Senator Ahmed Ali, Chairman, Senate Standing Committee on Finance, as the Chairperson.
The forum invited a debate on economic and social aspects surrounding the issue. It was highlighted that the soft drink was a 'common man's entertainment' and thus should be made more affordable. The issue put forth was that high taxation structure levied on the industry was a real threat to its growth and development.
The stakeholders of the industry including beverage manufacturers, bottlers, crown and closure manufacturers presented their viewpoints and the roundtable provided input into the impediments for growth of the industry because of the high taxation structure at 25% of retail price. Both micro and macro impacts to the economy due to the charge, were highlighted amongst representatives from the Ministry of Finance, Ministry of Commerce and Central Board of Revenue.
Siraj Kassam Teli, Chairman, Pakistan Beverage Manufacturers Association stated, 'While exports are the backbone of any country and are linked to macro-economics and economic strategy, the local industry is directly linked with the consumer and thus deserves assistance in the form of friendly policies introduced by the GOP. The local industries like CSD industry should be facilitated so that trickle down micro-benefits can be obtained.'
Reiterating on the subject of tax concession, he said that the price elasticity of the industry should be taken advantage of, to increase the tax base by gradual reduction and eventual phase out of the CED. Siraj explained that the double taxation on the industry, be done away with.
He suggested that a roadmap be chalked out so that the industry be relieved of the dual taxes and the sector be allowed to operate on the same footing as it does in other countries of the region.
Ahmed Dildar, Chief Sales Tax, Central Board of Revenue, assured the participants that the government was moving in the direction of introducing Federal taxation. 'Large revenues are involved and very complicated CED rules have to be simplified.
Slowly and gradually it will take place,' he said. Imran Moid, Chief Financial Officer at PepsiCola International stated that the industry had experienced phenomenal growth at 30% increase last year and said that the contribution to the exchequer was Rs 8 billion approx. in tax revenues whilst Rs 10 billion spend on purchases from Allied Industries was also made.
'The policy in place should be revised with the rationale of reducing taxes to create growth' Moid stated. The round table discussed that for the industry to be able to operate in a conducive environment especially in the wake of the WTO and increased imports, the industry must be made more competitive. 'The government must realise that the soft drink has moved from being a luxury to being a part of common man's daily life', they said.
'The opportunities that arise with regards to domestic and international investment potential can be utilised under conducive tax regulations', the stakeholders pointed out.
It was brought up that the elimination of CED on the overall finished product is also necessary since the cost of raw materials eg soda ash for glass manufacturers and HDPE for plastic bottles have increased to further impact the price of the cold product.
Joel Riefman, Economic Affairs Counsellor, US Embassy speaking on the taxation issue said, 'Reducing taxes to create growth is a very good argument. Small decreases in price can result in big increases in sales. The other virtues that could happen would be increases in domestic and international investment. This would not only lead to an overall increase in financial terms but also in terms of technologies and methodologies.'
Mumtaz Ali, Former Commerce Secretary and Member, Central Board of Revenue, currently a tax consultant, gave his assessment saying that the CSD industry was a prime mover for economic development as it is one of the largest tax payers. He said that the prime movers must be allowed to grow faster so that the multiplier affect becomes more material and concrete.
Ahsan Jameel, Managing Director, Ecopack Limited stated that the tax policies applicable must be revised to broaden base and increase GOP revenues.
'The industry recommendation to abolish the CED has been put forward since the past 3-4 years but the concession yet remains to be granted,' stated Mukhtar Ahmed Qadri, Director Operations, Pakistan Mineral Water, representing Amrat Cola.
Imran Moid, stated that after tax reduction, Government revenues has the potential to increase by 3 times ie from 7 billion to over Rs 20 billion, approximately.
"A tax reduction in the beverage industry would result in a three fold benefit to the country. It would lead to a winning situation for all, with the exchequer benefiting in the form of tax revenue, being driven of increased volume growth, business gain of the players and consumer gain at individual level," stated Senator Ahmed Ali, Chairman, Senate Standing Committee on Finance whilst concluding the session.
Talking informally to the participants of the conference, Abdullah Yusuf, Chairman, Central Board of Revenue said that the most important step towards progress was that policies which are being formulated are geared in the right direction and although progress might not be very fast paced but is certain.
The roundtable concluded recommending CED reduction and the players suggested a phase out roadmap be chalked with details on the impact on GOP revenues.
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