Recently, Pepsi and Coke, two key players in the carbonated soft-drink industry, held a meeting with the finance ministry of Pakistan to assure their commitment to bring in investment funds worth around USD 200 million from their parent companies. This significant financial inflow is aimed at supporting the beverage industry and providing the much-needed boost to the economy amid the ongoing economic crisis in the country.
Islamabad: In the midst of the
current economic crisis in Pakistan, the proposed four per cent federal excise
duty (FED), known as the “sugar tax”, is causing major concerns for the
beverage industry. The Federal Board of Revenue (FBR) has been warned that the
tax increase will not only drive up the prices of beverages, but it will also
put the crucial $200 million investment plan of two major carbonated soft-drink
companies, Pepsi and Coke, at risk.Representational Image
The two companies recently met with Pakistan’s finance ministry and assured that they would obtain loans worth around $200 million from their parent companies to bring dollars into Pakistan. The ministry agreed that their imports of key parts, equipment, and components for the “concentrate” could only be made through dollars.
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In a joint letter to Prime Minister Shehbaz Sharif, Pepsi and Coke have expressed their dissatisfaction with the proposed four per cent federal excise duty on beverages, as it is being levied solely on carbonated drinks. The companies stated that the country needs a tax policy that encourages local manufacturing in order to survive, if not thrive. The combined taxes, including sales tax and FED, are already high at 30 per cent, and the aerated waters industry is the only one among various water-consuming industries paying “water charges”. The imposition of a health levy has also been suggested for the beverage industry only. The companies claim that implementing the sugar tax on top of high FED will result in double taxation and lead to the total collapse of legitimate taxpaying manufacturers in the beverage industry.
Amid the severe economic crisis, the International Monetary Fund (IMF) mission led by Nathan Porter recently began talks with Pakistan for the ninth review of the $7 billion assistance package. Prime Minister Shehbaz Sharif has claimed that the IMF is giving a “tough time” to the government during these talks and that the conditions the country has to meet are “beyond imagination”.
Pakistan’s central bank has reported that its foreign exchange reserves have dropped by 16.1 per cent to $3.09 billion at the end of the last fiscal week, the lowest in nearly 10 years. The IMF, after a successful ninth review, would provide over $1.1 billion, which would open up venues for bilateral loans from different friendly countries and multilateral institutions. However, Pakistan has already agreed to increase petroleum prices and allowed a market base exchange rate, but the IMF wants further measures to increase revenue.
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The proposed four percent federal excise duty on beverages, known as the “sugar tax”, is causing major concerns for the beverage industry in Pakistan. The tax increase will not only drive up the prices of beverages, but it will also put the crucial $200 million investment plan of two major carbonated soft-drink companies, Pepsi and Coke, at risk. The companies have expressed their dissatisfaction with the tax, stating that it is unfair and will result in double taxation, leading to the total collapse of legitimate taxpaying manufacturers in the beverage industry. With the current economic crisis, the IMF is giving the government a “tough time” and the country needs to implement measures.