Pakistan juice industry under strain as report urges scrapping 20% excise duty

A report by the Policy Research Institute of Market Economy (PRIME Institute) has called on the government to abolish the 20% Federal Excise Duty (FED) imposed on Pakistan’s packaged fruit juice industry, warning that the tax has turned a once-expanding, revenue-generating sector into what it described as an economic “disaster” for industry, farmers and government revenues alike.

The report comes as policymakers preparing the FY2026-27 federal budget consider proposals to either reduce or eliminate FED on a new category of juices containing no added sucrose or white sugar, while also separating fruit beverages from carbonated drinks for taxation purposes.

According to the institute, the current tax framework has severely damaged the formal juice industry since the government imposed a 20% FED in the FY2023-24 budget in addition to the existing 18% general sales tax.

The combined tax burden pushed taxation on packaged juice products to nearly 38% of the retail price, triggering a sharp contraction in sales and investment, the report said.

The PRIME Institute said industry sales, which had been projected to exceed PKR72 billion in FY2023, instead fell nearly 45% to about PKR42 billion following the imposition of the excise duty.

Sales volumes declined to levels last recorded in 2017, effectively wiping out almost a decade of industrial expansion in a single fiscal year, according to the report.

The institute added that no major new investments have been made in the sector since the FED was introduced in 2023.

The report described the outcome as a textbook example of the “Laffer Curve,” under which excessively high tax rates ultimately reduce government revenues by shrinking the taxable base.

According to the think tank, revenue projections for FY2024-25 also failed to meet expectations because the higher tax burden reduced consumer demand and compressed industry sales volumes.

“The fiscal math does not work when an industry is taxed into decline,” the report stated.

The institute also highlighted the impact on Pakistan’s agriculture sector, saying the packaged juice industry plays a central role in the country’s fruit supply chain.

Industry procurement of mangoes declined to 20,223 metric tons during FY2023-24 from 31,000 metric tons in FY2017-18, affecting fruit growers, pulp processors and rural incomes, the report said.

The reduction in procurement has also contributed to higher post-harvest losses and food waste, which remain major challenges for Pakistan’s agriculture economy.

The report further argued that the higher FED has accelerated the growth of undocumented and informal beverage manufacturers producing unregulated products outside the tax net.

Industry representatives cited in the report said compliant companies adhering to food safety and tax regulations were being penalized while undocumented competitors continued to expand rapidly.

The report noted that when a previous 5% FED on the sector was abolished, industry sales rose to about PKR60 billion, nearly 10,000 jobs were created and value-chain losses were reduced.

The PRIME Institute urged the government to fully eliminate the 20% FED in the upcoming FY2026-27 budget instead of introducing partial reductions.

It argued that the existing 18% sales tax already ensures adequate revenue contribution from the sector, while the additional FED functions as a punitive levy rather than a necessary fiscal instrument.

The think tank also called for fruit juices to be legally separated from carbonated soft drinks under Pakistan’s taxation rules, arguing that the two product categories are fundamentally different and should not be taxed identically.

According to the report, long-term revenue recovery lies in broadening the tax base and integrating undocumented businesses into the formal economy instead of increasing pressure on compliant industries.