The federal government is actively considering a reduction in the federal excise duty (FED) on aerated beverages, including fizzy drink, commonly known as ‘cold drinks’, in the upcoming 2025-26 budget, as part of efforts to attract increased foreign investment in the sector, Business Recorder reported.
Budget planners are currently finalizing the proposal, which is aimed at incentivizing further foreign direct investment (FDI), particularly from Turkish investors who have expressed strong interest contingent on tax relief.
Since 2018, major international beverage companies, including those with Turkish and Korean franchise partners, have invested more than $2 billion in Pakistan’s beverage industry.
According to industry sources, no new foreign investments have been made since 2023 due to the challenging fiscal environment. Despite contributing over Rs175 billion annually in taxes including FED, general sales tax (GST), income tax, and super tax the sector remains one of the most heavily taxed in the country.
Both major multinational beverage companies operating in Pakistan have been recognized with High Taxpayer Awards by the Prime Minister.
In recent consultations with the finance minister, foreign investors stressed that the unprecedented hike in FED from 13% to 20% in 2023 has severely impacted the industry. It led to a double-digit decline in sales volumes for two consecutive years (2023–2025), bringing the sector back to 2018 production levels. Current plant capacity utilization stands at only 60%, despite significant infrastructure and historic growth. Additionally, an investment of USD 300 million has been on hold since March 2023.
The combined tax burden now exceeds 38%-20% FED plus 18% GST, making beverages increasingly unaffordable for consumers. Industry stakeholders argue that a rollback of FED to 15% would not only enhance affordability and drive demand but also unlock an estimated PKR38 billion in additional tax revenue between 2025 and 2027, compared to maintaining the 20% rate.
They warn that excessive taxation is counterproductive, as the beverage sector is highly price-sensitive. Reduced consumption translates into declining tax revenues rather than gains.
Moreover, the industry also plays a crucial role in supporting around 500,000 households and over 16 linked sectors, including transport, advertising, tourism, and retail. Prolonged decline, they say, could lead to job losses and the closure of local suppliers.
Industry players assert that they are not seeking subsidies but a rational, growth-aligned tax policy.
They emphasize that tax relief would restore investor confidence, revive the $300 million in pending foreign direct investment (FDI), and help drive economic recovery.
However, the proposal to reduce FED aligns with the Prime Minister’s past directives to support industrial revival, ensure sustainable revenue generation, and attract FDI.
Industry data submitted to the Federal Board of Revenue (FBR) suggested that a fairer tax regime would allow the government to diversify its revenue streams without disproportionately burdening a single sector.
Stakeholders cautioned that failure to adjust the tax policy risks further disinvestment and negative signals to other potential investors. A reduction to 15% FED is seen as essential to reversing economic decline, generating employment, and securing long-term fiscal stability.
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