Juices, cigarettes prime focus: Govt plans to rationalise FED regime in budget

ISLAMABAD: The government is planning to rationalise Federal Excise Duty (FED) regime in the coming budget with specific focus on juices and cigarettes.

Sources told Business Recorder that the government is presently assessing the negative impact of the increased FED on the juice and cigarette industries.

The imposition of a 20 percent FED on fruit juices in June 2023 in addition to the sales tax of 18 percent led to a significant 40 percent decline in volumes for the formal packaged juice industry.

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This decline starkly contrasts with its projected growth trajectory. With over 100,000 individuals engaged in its value chain, the fruit-based beverage industry now faces increased unemployment and under-utilisation of production capacity.

Moreover, consumers are turning to cheaper, lower-quality alternatives from the undocumented sector due to the FED, posing health risks and hampering revenue collection efforts. Addressing this issue is necessary in the coming budget for fiscal year 2024-25 for economic stability and public health, emphasising the need to maintain access to healthier beverage options.

Additionally, the decline in fruit procurement has negatively impacted rural economies, emphasising the importance of supportive policies to safeguard farmers’ livelihoods.

Due to the levy of 10 per cent FED in the 2022-23 budget, industry sales plummeted to Rs43 billion, which would have increased to more than Rs70 billion, considering the industry’s growth trajectory in the previous years. In the 2023-24 budget, the government raised the FED to 20 per cent to meet revenue shortfalls.

According to industry representatives, the imposition of 20 per cent FED has shot their sales down by around 50-70 per cent, slashing their new procurement targets.

“Given our inventory, current sales trends and other factors, at least mangoes may not be purchased this season, and there shall be a substantial drop in the procurement of peaches, apples and other fruits.”

A shrinking business size has created more unemployment within the industry. After the imposition of the FED, the industry has not been utilising its full production capacity. As a result, no new investments were made in 2023-24 and are not planned for 2024-25 either.

After the imposition of the 20 per cent FED, industry volumes have crashed by 41 per cent, and fruit procurement has gone down by almost half. This has affected pulp processors as well as the local farmers. As a result of dipping sales, some companies have had to lay off workers, especially daily wage workers.

“The whole industry is in crisis, and many players are considering downsizing their sales and production teams to cut down expenses,” says the general manager of another unit, who requested not to be named. As the drop in sales has led to a shortfall in the revenue the government expected to collect, he wonders what the government achieved in this trade-off.

Copyright Business Recorder, 2024