‘New taxes on beverage industry to jeopardise Rs60bln revenue’

KARACHI: Businessmen warned the government against slapping new taxes on beverage industry in the forthcoming budget for 2019/20 fiscal year as they might put tax revenue of Rs60 billion at risk with potential industrial closure.

Businessmen Group (BMG) of Karachi Chamber of Commerce and Industry (KCCI) said there is a high chance that the imposition of new taxes might lead to closure of the industry resulting in job losses, besides hampering efforts to lure foreign investments into the country.

They said the beverage industry is already contributing Rs100 billion to the exchequer by way of output tax through federal excise duty and sales tax, while the net revenue collection by the government comes at around Rs60 billion a year, which is apart from income tax, withholding taxes, super tax and other provincial taxes. “New taxes would significantly dent the government’s revenue and render hundreds of thousands jobless,” Siraj Kassam Teli, chairman of BMG said in a letter to the Prime Minister Imran Khan.

Teli is the director of Pakistan Beverage Limited – Pepsi Cola franchise.

The government is considering health tax, water surcharge and new federal excise duty on beverages and juices in the next budget.

Teli said beverage industry and its products have become a necessity of life over the years, as many Pakistanis do not have access to pure drinking water and the industry is providing them safe water and other beverages produced with state of the art machinery by following global hygienic standards.

“We understand that the country is in dire need of additional revenue but one should realise that this new revenue must come from new sources and even if it is taken from old sources then it needs to be justified according to the capacity to pay otherwise it may jeopardise the existing revenue,” Teli, who’s been KCCI president, said.

BMG chief said beverage industry is already heavily taxed and if more burden is put on the industry, its growth, which is already in a declining mode in the first quarter, might suffer. “Cost of doing business has already gone up due to import/regulatory duties and upsurge in dollar rate more burden will be passed on to the consumers.”

Teli said supply side of economics should follow where more revenue is generated with growth. Taxes should be reduced along with consumer prices and that would lead to quantum growth and appreciation in net revenue as well, he added. “Any proposal to increase taxes will reverse the growth and it would start declining, ultimately reducing the revenue already being achieved from the beverage industry and above all high taxes are incentive for evasion.”

Teli said existing policies are actually shrinking the economy. The government should have imposed a complete ban for one or two years on luxury items such as cars, items which are locally manufactured and foods unneeded for survival.

“Also controlling inflation by increasing interest rates has a negative impact on new investment and industry,” he added, referring to a recent 150 basis points increase in interest rate to 12.25 percent. “The solution lies in more industrialisation only.”