Aerated waters: Dar refrains from promising duty cut

Asks beverage industry to wait for decision until the end of budget debate.

ISLAMABAD:

The government on Saturday remained non-committal about reversing the recent increase of 33% in federal excise duty (FED) on aerated waters as the beverage industry claimed that it would lead to an increase in prices of soft drinks.

The representatives of the beverage industry, in a meeting with Finance Minister Ishaq Dar, requested him to withdraw the increase in excise duty. In the new budget, the government has enhanced the FED on aerated waters from 9% to 12%.

Dar is said to have told the industry players that he would disclose his decision in the National Assembly while winding up the ongoing budget debate.

“Negotiations with the government are still going on,” said Rizwanullah, who represented Coca-Cola in the meeting.

The FED on aerated waters was 12% up to June 2011, which was later reduced to 9%. According to the FBR, the present 9% duty was too low to be adjusted against the FED paid on concentrates. Owing to the low rate, it said, not all aerated water manufacturers were paying the duty.

To address this issue, the FED had been increased to 12% in the new budget and it would generate at least Rs3 billion in additional revenues, said the FBR.

The beverage industry, however, is fiercely opposed to the sudden increase in its tax liabilities, fearing it will have adverse implications for the growth of business. On average, each manufacturer would be paying Rs250 million extra in the new fiscal year, said industry players. They have sought a gradual increase in the duty rate.

According to the FBR estimates, it will receive an additional Rs2 billion from major players and Rs1 billion from small players.

If the government does not take back the decision, prices of soft drinks would be increased, likely after Eid, said industry people.

Some players suggested that instead of increasing the FED, the government should bring back the capacity tax regime. However, the proposal did not win support of other players, particularly small bottlers.

The judiciary and the FBR were also against the capacity tax, which had been introduced in fiscal year 2013-14 on the demand of Farooq Khan, a bottler and a financier of the PML-N.

Talking to The Express Tribune, Khan said the capacity tax stood nowhere and saw no chance of its revival. He also attended the meeting with Dar.

According to calculations of Coca-Cola, the industry will pay Rs40.5 billion in indirect taxes to the FBR in the outgoing fiscal year, Rs13.5 billion or 50% up from the previous year.

The industry is of the view that the tax increase will dent its growth. This may disturb the FBR’s calculations as the slower growth will reduce the contribution to government revenues.

Published in The Express Tribune, June 14^th, 2015.

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