‘It’s not a court’s job to impose tax’

An interview with Isphanyar Bhandara, CEO Murree Brewery Company Limited

Murree Brewery Company Limited (MBCL) traces its origin to 1860 when a brewery was set up at Ghora Gali (Murree) to meet requirements of the British Army. More than 150 years later, today MBCL has four divisions: Murree Brewery (alcoholic beverages), Tops Foods & Beverages (juices, ketchups, marmalades, etc.), Murree Sparkletts (bottled water) and Murree Glass (glass bottles). BR Research sat down this week with Isphanyar M. Bhandara, the MBCL CEO, to discuss issues related to the company in particular and the economy in general. Selected excerpts are produced below:

BR Research: How is the business brewing these days?

Isphanyar Bhandara: The growth in the food and beverage industry has been across the board. It’s not just Murree Brewery that is doing well – pick up any beverage MNC in Pakistan and you will see their sales are hitting the roof. The growth is there and the population’s youthful dynamics are driving this growth. The market is good, which is reflected in the food and beverage industry, along with telecoms, being a major advertising spender.

Unfortunately, whenever it becomes apparent that an industry is thriving, everyone–from the government, the FBR, the courts, and the executive – tries to make life difficult for that industry. I am not saying that MBCL is being singled out, but there are unnecessary problems that have been imposed on the entire industry. This happened with textiles, where a thriving industry was destroyed and our export base moved to Bangladesh. Now folks are looking at the food and beverage industry and thinking why it is thriving. Same is with the telecoms industry that is also under the spotlight.

Every businessman is profit oriented. But whenever MBCL’s better financial results come in the newspapers, instead of feeling happy I become afraid because I don’t know who else is reading the newspaper among the taxmen and the judiciary. Whenever I talk to government officials about facilitating the business community, they suggest “you’re already making bucket-loads of money and you should do it yourself”. This is a wrong mentality and it doesn’t sit well the investors.

BRR: How is the operating environment under the new government?

IB: It is a tough operating environment for businesses. The government’s attitude towards businesses is not friendly. Macro indicators reflect that. FDI has seen a drop since this government came to power; there is worsening rupee-dollar parity; look at inflation, which I think is actually in double digits. We used to criticise the previous governments for the begging bowl; today the bowl is bigger, as the government is desperately waiting for money from X, Y and Z sources.

BRR: But your line of business is especially vulnerable. Three-fourth of your gross sales come from alcoholic beverages, a segment where there are restrictions on the four marketing P’s. Have you become better at coping with persistent restrictions?

IB: No business is easy, but the business of liquor is especially hard in Pakistan. One, we don’t get to choose our customers; the government chooses our customers, as only the government can give license to a hotel or to a wine shop. And second, even the prices of our alcoholic beverages are set by the Punjab Excise and Taxation Department, under whose jurisdiction the brewery is located in.

BRR: Your company has recently been in litigation against i) ban on liquor sales in Sindh and ii) still-head duty levied by Punjab government. What’s the update on the two?

IB: It’s a sad story of how our liquor was banned in Sindh back in 2016, all because of someone’s political vendettas. The Sindh government also didn’t realise how the liquor ban deprived them of revenues and encouraged smuggling. More dangerously, the ban propped up underground business with elements of crime. There should be a criminal inquiry on this issue as Sindh lost tax revenues to the tune of over one billion rupees due to this ban.

As for the still-head duty, the Punjab Excise Department has lost the case against the dealers in the court. But the department is in contempt because it is still charging the duty on behalf of the Punjab government and against the Sindh government. The Sindh government is not pushed; the dealers are not pushed either as this money is coming out of consumers’ pockets.

BRR: Why do you think the beverage industry wasn’t given GIDC relief in the Jan-2019 mini budget?

IB: I don’t know the real reason why that relief did not extend to the beverage industry. But on GIDC, there are various stay orders against it, across different industries. We have also got a stay. We are paying the cess on current billings, but they wanted the cess collected on arrears as well.

This cess goes back to my opening remark that instead of expanding the tax base, the government is going after industries that are doing well through various types of duties and taxes and levies. It is totally unfair that the government is trying to squeeze more out of existing taxpayers.

BRR: What is your take on the SC order of levying Rs1 per liter tax on water that is extracted for business purposes?

IB: Let me be clear on this issue: nobody is against conserving water; try living without water. I personally ensure that my family and I are conserving water.

On the Rs1 per liter water levy, I have a difference of opinion. One, if this levy is to be collected, it should be collected across the board, as other industries like agriculture, cement, construction, leather tanning, etc. also heavily use water in their production or manufacturing processes. Imposing this levy on the beverage industry alone is discriminatory. And second, the court can take up matters of public importance but it cannot impose a tax. That is the job of the parliament, of which I have been a part for five years.

BRR: This levy will set you back nearly how much?

IB: MBCL is not a very large company if evaluated by the volume of water we use. But this levy can cost this company about Rs600 million every year, making us uncompetitive. To add insult to the injury, the court has asked the industry not to pass on the impact of this water levy to our consumers. If we are to lose money like this, we might as well wind up.

Though I do not doubt the noble intentions in this case, I am afraid that it leads to the same anti-industry bias that I referred to earlier. This is no way to instill confidence in potential investors.

BRR: Surely you can still pass on some of the impact to your customers. It’s not like you cannot raise prices at all.

IB: Why should we go down that route? We have been involved in a totally unnecessary controversy. The beverage industry already pays billions in duties and taxes; it’s just that this water levy is unfair.

BRR: What do you propose then?

IB: We are giving our suggestions to the court. First, the levy should be on the finished product, not on the extraction. Second, allow us to increase the price, which is not going to be a humungous increase. If they let us recover the levy from the customer, will it be a win-win situation for the industry and the government. But even if we get those concessions, this will probably be the first time a court-imposed tax would be implemented. That is wrong.

BRR: You seem bitter with this government. What would you propose to them in the interest of improving the business climate?

IB: I have a simple message. The government should stay out of business. And the courts should focus on delivering justice.

The language and attitude of executive bodies like the excise department and the food authorities should be friendly. Bureaucracy needs to decide on businessmen’s issues without sitting on it for months. Taxes should be levied only through the parliament.

Beyond that, there needs to be clarity on what this government’s economic priorities actually are. My good wishes are with this government. But sadly this government is very vindictive. It is time for them to move on and prove their mettle. Yes, I represented the PML-N as MNA between 2013 and 2018, but I still feel that the previous government’s economic policies were sounder.