Beverage Industry Seeks FED Cut Ahead of Budget to Boost Tax Revenue

Pakistan’s beverage industry has urged the government to approve a FED Cut Proposal before the FY2026-27 budget. Industry representatives believe a lower Federal Excise Duty (FED) will increase tax revenue and expand the documented economy. Therefore, they have asked authorities to reduce the duty on aerated waters from 20 percent to 15 percent. The request comes as policymakers finalize budget measures for the next fiscal year. According to the industry, lower taxation will encourage business growth and improve compliance. In addition, it will help formal companies compete more effectively with undocumented manufacturers. Industry leaders argue that a balanced tax policy can support revenue growth while strengthening market transparency.

Industry Says Lower Duty Will Raise Revenue

The Beverages Advisory Foundation (BAF) submitted its proposal to the Federal Board of Revenue and the finance ministry. The foundation stated that higher taxes have increased the share of undocumented manufacturers in recent years. As a result, the formal sector has lost market share despite contributing most of the tax revenue.
According to industry estimates, the reduced duty rate could generate an additional Rs8 billion in gross tax revenue during the first year. Furthermore, cumulative tax collections could increase by around Rs63 billion over three years. The proposal suggests reviewing the policy by June 2027. If expected targets are not achieved, the government could restore the duty to 20 percent. Industry data also projects tax collections of nearly Rs185 billion in FY2026-27 under the proposed structure. This figure exceeds the estimated Rs167 billion expected under the current tax regime.

Documented Market Share Expected to Recover

The industry believes the lower tax rate will encourage investment in distribution networks and market expansion. Moreover, it will reduce the retail price gap between documented and undocumented producers. Consequently, fewer businesses may operate outside the tax system.
Industry representatives noted that before the FED increased in 2023, beverage volumes and tax revenues grew steadily. However, growth slowed after the duty reached 20 percent. They claim undocumented producers expanded their market presence while contributing only a small share of tax revenue. Meanwhile, the federal government is preparing the FY2026-27 budget. Officials are also expected to approve a development programme exceeding Rs3.5 trillion alongside economic targets for growth and inflation.