Cos plead case before PM: 10pc FED on juices to inflict revenue loss on FBR

ISLAMABAD: The imposition of 10 percent Federal Excise Duty (FED) on juices will actually result in revenue loss to the Federal Board of Revenue (FBR) due to shrinking of business size and volumes in the remaining period of 2022-23.

In a collective representation to Prime Minister Shahbaz Sharif on Thursday, the national and multinational companies pleaded their case before the PM.

The formal juice industry has an annual turnover of above PKR 59 billion with an estimated investment of Rs40 billion and employs over 5,000 employees in the value chain.

In line with local regulations (such as Punjab Food Authority), fruit drinks have minimum eight per cent fruit content, nectars have 25-50 per cent fruit content and pure juices have 100 per cent fruit content. In fact, fruit juices are promoted as healthier options by Food Authorities across the country for consumption in schools and colleges, they said.

The juice industry is playing an integral role in the development and protection of fruit farmers. Fruits have a high rate of wastage and farmers have to sell their produce at very low prices during peak season due to inadequate storage facilities and a lack of effective processing or preservation techniques. The juice industry, by timely procuring fruits (like Mango, Kinnow, Apple, Guava, etc) from the farmers, at a good rate, prevents significant food wastage in the value chain. This also results in the farmers’ uplift and prosperity.

According to the industry, the industry procured an estimated 100,000 tons of mango, apart from other fruits, for conversion into pulp from local farmers. In 2019 with the imposition of five per cent FED on fruit juices, the industry took a major hit that resulted in shrinking of the industry size by 23 per cent in 2019-20, almost four times the impact.

The juice industry of Pakistan also has a high concentration of smaller players that are undocumented and hence not paying any applicable taxes. The imposition of FED will impact the affordability of the products produced by documented players, resulting in a large proportion of consumers shifting to low-priced, low-quality and possibly unsafe alternatives offered by the undocumented sector. This will impact the government through a loss of tax revenue. In addition, a shrinking business size would create more unemployment, not just within the industry but also negatively impact farmers linked with the industry.

Furthermore, tax collection through the application of any additional tax (FED) on fruit drinks and juice products would not have a favourable impact on revenue collection as the business volume would shrink again as happened in 2019-20 while five per cent FED was imposed.

The industry, after the withdrawal of five per cent FED in June 2021, had found its growth momentum and any tax distortion at this time will again disrupt this growing segment. The industry has urged the government to withdraw the 10 per cent FED on juice, as historically such steps had adverse impacts on the industry and consequently the rural economy and the government’s revenue collection, it added.

Copyright Business Recorder, 2023