Fiscal year 2019 Budget: beverage industry wants cut in indirect taxes

The indirect taxation on beverage industry has been proposed to be reduced drastically in the federal budget 2018-19, as industry has already invested more than half billion dollars in expanding manufacturing capability in Pakistan.
Industry experts told Business Recorder here on Friday that the FBR members had recently held a meeting with the representatives of the beverage industry in which the demand for the rationalization of federal excise duty (FED) on the beverage industry, being a non-luxury consumable item, was raised.
The experts said that the government's inconsistent policies and inappropriate taxes are discouraging industry from new investment. If the government now acts sensibly and understands that by providing beverage sector a little space to grow and invest further, the national exchequer will be the biggest and ultimate beneficiary in shape of increased tax collection and duties.
Pakistan is estimated to be among the top 10 beverage consumption markets in the world that is paying second highest indirect taxes of 27.5 per cent on retail price of carbonated soft drink to the government exchequer. This much indirect taxation leads to a disincentive mode for the foreign investors.
Beverage industry has been traditionally regulated under the regime of Federal Excise Duty (FED) and Sales Tax (ST) at 11 percent and 16 percent respectively, besides other discriminatory taxation as compared to other sectors within food and agriculture related industry. There is also a need to bring uniformity in the system so that every player is provided with a level playing field, the experts suggested.
The federal budget 2018-19 is expected to be presented sometime in the month of May this year. The finance managers have already started brainstorming and as usual taxation, the most important aspect of the budget-making, is under discussion. The major task before them is to prepare a budget which can attract investment to generate employment for poverty alleviation and economic affluence. Pakistan's corporate tax rate is 34 per cent against the worldwide average of 22.6 per cent. Therefore, there is a need to revise the corporate tax structure.
Recently, the Punjab Food Authority (PFA) seized 400,000 spurious soft drink bottles from a factory in Lahore's Sohdra area. During the raid, the factory owner first threatened the PFA team and then opened fire at them. The factory, which is located on Bara Deri Road, has sold about 3.37 million fake soft drink bottles of a well-known brand, according to a report. The growth of counterfeit products can only be avoided through a rational tax structure designed after discussion with the stakeholders of the particular product.
On the other hand indirect taxes, like Federal Excise Duty (FED) on various goods and high sales tax of 17 per cent, force retail prices up and reduce buying power in Pakistan, which is a low per capita income market. Instead of generating revenue on the basis of high rate of taxes the best way out is to rationalise the duties and tax rate to promote retail sales and generate tax on the volume of business, the experts opined.
The reduction in corporate tax rate will not only encourage the entrepreneurs to pump in more investment but may also help the other allied industries grow accordingly.
Pakistan's indirect tax system is harming the investment climate and has a bias against the poor, putting greater burden on the low-income households rather than the rich. A report by a social development organization stated that the poorest 10 per cent of households contribute 16 per cent of their income to three indirect taxes - general sales tax, central excise duty and customs duty. Therefore the government should consider options to tax more products at a lower rate and generate revenue on quantity. There is also a need to broaden the tax base by including other categories like F&B, luxury items, imported cars etc.