US seeks reversal of tax increase

Embassy delegation meets SAPM to lend support to foreign beverage firms

ISLAMABAD:

The United States embassy in Islamabad on Friday backed the demand of beverage companies for withdrawal of proposed 7% increase in federal excise duty (FED), a stance that Pakistan sees as out of sync with the harsh ground realities.

A delegation of the US embassy held a meeting with Special Assistant to Prime Minister (SAPM) on Revenue Tariq Pasha to lend its support to the foreign companies producing beverages or selling global brands.

“A US embassy delegation, led by Aaron Fishman, Commercial Counsellor, and representatives of multinational beverage companies visited the Federal Board of Revenue (FBR) and met with Special Assistant to PM on Revenue Tariq Mahmood Pasha,” said a statement issued by the FBR. FBR Chairman Asim Ahmad also attended the meeting.

Representatives of the beverage companies requested Pakistani authorities to withdraw the hike in taxes, sources privy to the meeting told The Express Tribune.

They said that the 7% increase in FED would result in a reduction in their sales amid an already high cost of production due to soaring inflation.

Two US companies are currently operating in Pakistan and the increase in FED will directly hurt them due to reduction in sales of either finished products or their concentrates.

The delegation also discussed the new tax provisions for the beverage industry and the SAPM and FBR chairman assured the representatives of companies that their genuine hardships and concerns would be taken care of on a priority basis, according to the FBR.

The FBR, however, did not give any assurances to immediately withdraw the increase in duty, saying that Pakistan’s economic conditions did not permit it, sources said.

However, the abrupt changes in taxation policies will negatively affect
the annual business plans of companies, which ultimately dents confidence in Pakistan’s economy. The best way to deal with the current economic crisis should be to impose direct taxes on the income of people and companies instead of targeting their consumption.

Earlier, Finance Minister Ishaq Dar on Wednesday unveiled a mini-budget to collect an additional Rs170 billion in the remaining period of current fiscal year. The annual impact of the mini-budget is estimated at around Rs550 billion.

The government has increased the FED on carbonated water and beverages from 13% to 20%. Additional earnings from the increase are estimated at Rs7 billion for four months, with annual impact of over Rs21 billion.

The additional collection from sugary drinks is part of a plan drawn up to collect Rs7.640 trillion in overall taxes in the current fiscal year.

Sources mentioned that the US embassy’s intervention in tax matters has raised the stakes. They revealed that the government did not give any assurances to withdraw the increase in the levy. However, it indicated that it may review the move in June budget, provided sales of companies registered a decline due to the additional tax.

Citing recommendations of the World Health Organisation (WHO) for sugary drinks, the FBR chairman commented that sugary drinks were injurious to health.

The United States along with other countries has been urging Pakistan to increase its low tax-to-GDP (gross domestic product) ratio, which is even worse than that of some sub-Saharan African countries.

According to some estimates, Pakistan collects only half of its revenue potential, as large sectors like agriculture, wholesale, trade and construction remain outside of the ambit of taxation.

The government has also imposed 10% FED on juices, which the Senate Standing Committee on Finance has recommended to be reduced to 5%.

Representatives of Murree Brewery and Shezan Enterprises protested that the government had imposed FED on sugary fruit juices and squashes at the rate of 10% and termed the sudden increase unjustifiable.

A majority of taxation measures that the government has proposed in the budget appeared to be of poor quality, which may not yield the required additional revenues.

The increase in GST rate to 18%, imposition of up to 153% additional FED on cigarettes and higher FED on sugary drinks are the only measures that will generate significant revenues.

However, these hikes are highly inflationary and will hurt the poor the most.

Published in The Express Tribune, February 18^th, 2023.

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