In a potentially significant shift for Pakistan’s fiscal landscape, the government is reportedly considering a 5% Federal Excise Duty (FED) on over 50 categories of ultra-processed foods as part of the upcoming 2025-26 budget. This proposed measure aims to be a substantial revenue generator, tapping into a broad range of consumer staples.
Broad Scope of Proposed Tax
The new levy, if approved, would impact a wide array of popular products. According to initial reports, items such as frozen foods, various types of chips, carbonated drinks, instant noodles, ice cream, biscuits, frozen meats, sauces, ready-made meals, and sausages are all under consideration for the 5% FED. This extensive list indicates the government’s intent to cast a wide net in its revenue generation efforts.
A Major Revenue Stream on the Horizon?
Government officials are optimistic about the potential of this proposed tax to significantly boost indirect tax collections in the next fiscal year. While the proposal is still in its review phase, its approval could make it one of the largest revenue-generating measures on the indirect tax side of the 2025-26 budget. The final decision, however, is still pending.
Broader Indirect Tax Strategy Under Review
Beyond ultra-processed foods, the government is actively exploring other avenues to increase FED on various products as part of a comprehensive strategy to enhance revenue through indirect taxation. One notable proposal under review is a potential 100% hike in the FED on imported energy drinks, which could see the rate jump from 20% to 40%.
In the current fiscal year (2024-25), the Federal Board of Revenue (FBR) successfully generated approximately Rs 289 billion through increased or newly imposed FED on various goods. This success likely fuels the current consideration of further expanding the FED base.
Ongoing Adjustments to FED Rates
Discussions are also underway regarding modifications to the FED on items like juices and aerated water, though no definitive decisions have been reached. While adjustments to the FED on cigarettes are being evaluated, there are no immediate plans to reintroduce a third-tier taxation system for them.
Recent measures in the Finance Act of 2024 already reflect the government’s focus on indirect taxation. These include an increased FED on international air travel, a Rs 15 per kg excise duty on white crystalline sugar supplied to manufacturing entities, and an increase in the FED on cement from Rs 3 per kg to Rs 4 per kg. New FED rates were also introduced on acetate tow (Rs 44,000 per kg), nicotine pouches (Rs 1,200 per kg), and a 5% ad valorem rate on lubricating oil. These continuous adjustments underscore the government’s commitment to leveraging indirect taxes for sustained revenue generation.
