Business Recorder
The government’s reported move to consider reducing or abolishing FED on fruit juices in the upcoming budget is a welcome rethink. Budget makers are reportedly reviewing a proposal for zero or reduced FED on juices with no added sucrose or white sugar, along with separate tax treatment for fruit beverages and carbonated drinks. This space has been vocal about the risks of overtaxing the formal juice industry. Earlier, it argued that FED was delaying pulp localization, weakening the farm-to-factory value chain, pushing demand toward informal products, and shrinking the domestic scale needed for exports. The issue is not protection for one industry. It is about correcting a tax measure that has begun to hurt an emerging agriculture value chain. Pakistan needs to reduce fruit wastage and convert raw produce into higher-value products. The formal packaged juice industry can help by creating demand for fruit pulp, supporting local processing, and linking farmers, pulp producers, brands, and export markets. High FED has disrupted that progress. The Policy Research Institute of Market Economy, or PRIME, has called the current FED structure a self-defeating policy. Its point is simple: the government raised tax rates to collect more revenue, but the higher burden narrowed the formal taxable base. After 20 percent FED was imposed on packaged juices in Budget 2023-24, on top of 18 percent sales tax, sector sales reportedly fell by around 45 percent to Rs42 billion against expectations of over Rs72 billion. Volumes dropped to levels last seen in 2017, wiping out years of expansion in one stroke. The Fruit Juice Council’s numbers tell the same story. It says the 20 percent FED, along with 18 percent GST, has taken the cumulative tax burden on packaged juices to nearly 42 percent. Since FED was imposed, industry volumes have declined by over 45 percent, while the market has shrunk from nearly Rs60 billion in 2021-22 to around Rs40 billion in 2025. Consumption, according to the council, has fallen back to 2017 levels. This shows that the problem is not merely lower sales. The tax has made formal packaged juices less affordable and pushed consumers toward cheaper, undocumented alternatives. This is the Laffer Curve in practice. Beyond a point, higher tax rates do not raise revenue. They reduce sales, shrink the formal market, and weaken future collection. The state may have increased the rate, but it damaged the base on which that tax was supposed to be collected. Pakistan’s own experience with juice taxation makes the point clearer. When 5 percent FED was imposed on fruit drinks in FY19, formal juice sales fell from Rs53 billion to Rs41 billion in FY20. When it was removed, the market recovered to Rs59 billion by FY22, while GST collection also improved and almost covered the loss from FED. PRIME also notes that the removal of FED helped revive sales, create jobs, and reduce value-chain losses. There is another concern too: food safety and compliance. The Fruit Juice Council argues that the contraction of the documented industry has increased the market share of undocumented players, many of whom operate outside regulatory and food safety standards. That makes this more than an industry concern. A tax policy that makes regulated products less affordable can end up weakening consumer protection, compliance, and long-term revenue generation. The agriculture spillover is just as important. Pakistan loses over 30 percent of many agriculture products after harvest. A stronger pulp market can absorb part of that fruit and improve the farm-to-market supply chain. But the pulp market needs steady domestic demand, and that demand comes from the juice industry. PRIME notes that packaged juice companies sourced only 20,223 tons of mangoes in FY24, down from 31,000 tons in FY18. That decline affects not just manufacturers, but farmers, pulp processors, and the wider rural economy. This is also why juices and carbonated drinks should not be put in the same tax basket. Fruit drinks, nectars, and pure juices have mandatory fruit-content requirements, with pure juices containing up to 100 percent fruit content. These products are linked to local fruit procurement, pulp processing, and rural supply chains. Carbonated drinks, by contrast, are largely flavoured beverages with limited connection to agriculture. Treating the two categories alike ignores both their nutritional difference and their very different economic linkages. High taxation also hurts investment. When domestic sales shrink, companies delay spending on processing capacity, product development, technology upgrades, and export readiness. This matters because fruit juices have export potential but need scale at home first. Without a healthy domestic base, firms cannot invest in better shelf life, R&D and international market standards. This is why reducing or abolishing FED should be seen as a strategic correction. It can revive formal sales, support pulp production, reduce fruit wastage, protect investment, and help the industry move toward exports. It can also support more sustainable revenue by expanding the formal base instead of overtaxing a shrinking one. A practical compromise would be to reduce FED on existing juice variants and exempt the proposed no-added-sucrose or white-sugar category from FED altogether. The Fruit Juice Council has proposed reducing FED on existing variants from 20 percent to 10 percent, while granting complete FED exemption to the new no-added-sucrose or white-sugar category. This would address the government’s health concern without destroying the formal juice market. It would also encourage reformulation, product innovation, and healthier choices within the documented sector. The budget should not treat this as a favour to one industry. The better approach is to remove the extra FED layer, or at least bring it down sharply, while keeping the sector under the normal GST regime. That way, the government still collects tax, but without pushing the formal market further into decline.
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