Budget 2024-25: Extra taxation will be avoided, FBR assures juice industry

ISLAMABAD: The Federal Board of Revenue (FBR) has assured the formal packaged juice industry that the government will try to avoid additional taxation burden on industry and farmers in coming budget (2024-25).

It is learnt that the juice industry Thursday conveyed to the government that the imposition of 20 percent federal excise duty (FED) and 18 percent sales tax failed to achieve the desired results of enhanced revenue collection in 2023-24.

Sources told Business Recorder that the industry held several meetings with Chairman Federal Board of Revenue (FBR) and other senior government officials, high-ups and relevant quarters to plead their case before the government.

The imposition of a 20 percent federal excise duty (FED) on fruit juice manufacturers in the last federal budget has significantly reduced the market for surplus produce and export leftovers. In response, the juice industry has cut back on its fruit pulp purchases, leading pulp manufacturers to scale down their fruit procurement from farmers affecting the latter’s livelihood.

The FBR Chairman has been informed that a 5 percent FED had been imposed on the formal juice industry in 2018-19, following which the sales for the - formal Packaged Juice industry had fallen. After the FED was removed, the industry had a growth trajectory for three years.

As a result in 2022, the industry had an annual turnover of about Rs 60 billion and employed around 10,000 people. The sales were projected to grow to more than Rs71 billion in 2022-23.

With the sudden imposition of 20% FED on juices (in addition to 18% GST) in the Annual Budget 2023-24, industry sales have plunged by 41%. Sales over the last year have fallen to around Rs 49 billion. The decline in sales has led to the industry being unable to utilize its installed production capacity, with no new investment made in 2023-2024 or planned for 2024-25.

In 2022, the industry locally procured an estimated 100,000 tons of mangoes, kinnows, apples, peaches and guava from farmers, for conversion into pulp. However, in the last two years, the procured volumes have declined by almost 50%. This shrinking business size has had and will continue to have an unfavorable impact on sales tax revenue and the overall allied industry, leading to unemployment and negatively impacting fruit farmers and pulp processors.

The government might think that with 20% FED (in addition to 18% GST), it will increase its revenue. But in the years following 2024, the revenue will continue to decline as a result of the shrinking industry volume. In comparison, if the government had not imposed such high FED, the juices industry would have grown year-on-year, giving the government more revenue over the years.

High Tax Causing Decline in Growth: In addition, the imposition of 20% FED (in addition to 18% GST) is impacting affordability of the products produced by documented players. This means consumers are effectively paying around 42% of the ex-factory price as taxes on a pack of juice. This has resulted in a large proportion of consumers shifting to low-priced, low-quality and possibly unsafe alternatives offered by the undocumented sector, which is almost 20% of the industry size. In the last year alone, the undocumented sector has grown manifold. If the government brings in the undocumented juice industry into the tax net, instead of over burdening the formal juices industry, its revenues will increase.

The formal Packaged Juice industry also shows great potential for increasing exports. However, it is critical that the domestic juice industry be on a growth trajectory in order to be able to increase exports. The highest potential for exports exists in markets with a huge diaspora. Local growth is essential to developing the value chain further by bringing in investment for better technology, product trials as well as product development. If the industry fails to grow, exports will also end up suffering.

On the other hand, if the FED is abolished on the local juice industry, it will enhance the potential for exports. We foresee exports worth close to US$100 million in five years, with 30% growth in exports year-on-year basis, the industry added.

Copyright Business Recorder, 2024