Juiced with taxes!

Tayyab jajjvi

As Pakistan battles rising inflation, unemployment, and a sluggish economy, it must be wary of policy decisions that further strain already fragile sectors. One such sector is the formal packaged juice industry-arguably a healthier option to unregulated refreshment drinks. Yet, since the imposition of a 20 percent Federal Excise Duty (FED) in 2023, on top of the existing 18 percent General Sales Tax (GST), the industry has seen its sales volume crash by 45 percent, investments dry up, and its ability to support fruit farmers severely hampered.

This tax burden not only undermines a promising industry that offers safe choices to consumers, but it has also proven to be counterproductive. The government, expecting higher revenues, ended up falling short of its own projections. Formal industry players are now calling for a modest 5 percent reduction in FED in the upcoming budget for 2025-26. Their request deserves serious consideration-not just for the sake of business, but for the broader economic, nutritional, and social ripple effects it will generate.

Juices and nectars are part of a balanced diet. Packaged fruit juices offer essential vitamins, minerals, and antioxidants and are also a convenient way for people, especially children and the elderly in some cases, to consume fruit-based nutrition for refreshment. Encouraging their consumption-particularly in a country struggling with soaring temperatures – should be a policy objective, not a casualty.

Instead, the tax policy has made packaged juices an expensive luxury. With around 42 percent of a juice pack’s retail price now comprising taxes, affordability has taken a hit. As a result, consumers are increasingly shifting to cheaper, often unhealthy alternatives peddled by the informal sector. These products not only lack nutritional value but often do not contain any real fruit content. In essence, a tax policy meant to raise revenue has succeeded only in driving people toward inferior products, posing a public health risk in the process.

Before the introduction of the FED, the formal juice industry was on a growth trajectory. Sales were projected to exceed PKR 72 billion in 2022-23. Instead, they plummeted to Rs42 billion-a stark 45 percent decline. This has triggered a chain reaction across the industry. With demand collapsing, companies are running far below their production capacity, leading to job losses and halted investments. Over the last two years, not a single new investment has been made in this sector.

The fallout doesn’t end there. The juice industry relies heavily on the local supply chain, especially fruit farmers and pulpers. With declining sales, the demand for fruit pulp has also shrunk. In its heyday, the industry procured over 100,000 tonnes of fruit from local farmers. Last year, only about 20,233 tonnes of mangoes were purchased-down from 31,000 tons in 2017-18. This sharp drop in procurement has hit the rural economy hard, as farmers are now left with unsold produce and shrinking incomes.

Ironically, while the formal sector is buckling under the weight of taxes, the informal sector is booming. Unregistered players now dominate a growing share of the market, raking in massive profits without paying a rupee in taxes. Their growth is directly attributed to the high FED on formal juice makers. By pricing their substandard products lower, they’re capturing consumers who can no longer afford formal juices. This creates an uneven playing field, punishes tax-compliant businesses, and undermines the government’s ability to collect revenue.

This should be deeply troubling not just for policymakers, but also for regulatory authorities. The unchecked growth of these informal producers poses serious risks to public health. With little to no quality control, these products bypass food safety protocols and labeling requirements. Consumers are in many cases unaware of what they’re drinking, and food authorities must act swiftly to crack down on this shadow industry.

One of the least discussed but most significant contributions of the juice industry is its role in reducing food waste. Fruits are highly perishable. In Pakistan, due to lack of cold chains and poor storage, vast quantities of fruit rot before reaching consumers. The juice industry helps bridge that gap by procuring produce at the right time, preserving it through pulping and packaging, and ensuring minimal wastage.

Moreover, formal juice companies have worked with farmers to promote better agricultural practices, enhancing productivity and quality. With the decline of the formal sector, these developmental partnerships have also taken a hit. What we’re witnessing is not just the decline of an industry-but the collapse of a small but effective value chain that benefited farmers, manufacturers, and consumers alike.

Countries across the world are moving toward progressive taxation that incentivises healthy consumption. Some even offer tax rebates or lower duty rates on products with natural fruit content. Pakistan should take a cue from such examples. The government must re-evaluate the current tax regime for the juice industry in the upcoming budget. A 5 percent reduction in FED could provide much-needed relief, restore consumer demand, and stimulate growth.

Additionally, regulatory clampdowns on the informal sector must become more stringent. Food authorities, in coordination with law enforcement and industry stakeholders, should establish clear mechanisms for tracking and eliminating substandard products from the market. One option is to form a task force involving both government and industry representatives to monitor illicit manufacturing and propose practical solutions.

The current tax policy on packaged juices is a textbook example of good intentions gone awry. What was meant to generate revenue and discourage unhealthy consumption has, in practice, crippled a promising industry, hurt farmers, misled consumers, and failed the exchequer. It’s time for the government to correct the course. The packaged juice industry supports livelihoods, protects produce, and contributes to the formal economy. A rationalised tax policy will not only help the sector recover but also ensure a healthier, more sustainable future for Pakistan.