Govt mulls 5-20% FED on packaged foods

ISLAMABAD: The government is considering options for imposing a 5-20pc Federal Excise Duty (FED) on a wide range of Fast-Moving Consumer Goods (FMCG) categories, including biscuits and confectionery items, in the budget for 2025-26. This FED, if implemented, would have significant ramifications for the affected industries, severely threatening margins, affordability, demand, employment, and even overall tax revenues. The excise duty on processed foods will inevitably be passed on to consumers — raising prices of everyday staples like biscuits, juices, frozen foods, and ready-to-eat meals. In a country where the average household spends a disproportionately large share of its income on food, these increases are economically damaging.

A 20pc FED is projected to saddle the packaged-food industry with a 25pc drop in revenues, undermine a 20pc jobs and 15pc revenue loss on downstream sectors, and deliver only a marginal net gain to the exchequer once offset by lost sales and income taxes — while driving consumers to the untaxed, unregulated economy.

Contraction of the organised (formal) packaged-food industry experience from the packaged-juice sector shows that adding a 20pc FED on top of existing 18pc GST drove formal sales down by nearly 45pc, from an expected Rs71 billion in 2022-23 to around Rs42 billion in 2023-24. With retail prices up, demand falls sharply — industry insiders project a 25-30pc drop in volumes, translating into similar revenue losses across the board.