ne year after the government imposed a 20 percent federal excise duty on packaged juice, in addition to the 18 percent existing sales tax, industry leaders are saying the business is crashing under its weight. They have demanded that the government abolish the duty on the formal juice industry.

In June 2023, the government had introduced a 20 percent duty on packaged juices (100 percent fruit juices, nectars and juice drinks) and carbonated beverages to address revenue shortfalls. The local fruit juice industry had opposed the measure, arguing that fruit drinks containing fruit content should not be equated with aerated beverages.

The juice manufacturers say the imposition of the duty has led to smaller profit margins, decreased competitiveness, negative ripple effects on the supply chain, altered consumer behaviour, deterred investment and potential informal market activity. They say the outcomes in terms of public health and government revenue have been mixed.

The juice manufacturing industry is connected with several other sectors, including agriculture and distribution. Market data suggest that higher taxes have negatively impacted the supply chain, from fruit growers to distributors as demand for products as well as services has dropped.

The imposition of the duty has raised the effective retail price. This has deterred some consumers from purchasing these products. Some of the consumers have shifted to untaxed or lower-taxed alternatives. This change in consumer behaviour has reduced the market share for juice products.

Packaged juice producers say the juice sector has considerable promise for expansion in the global market. They say the contraction in business has brought down the government’s sales tax revenue across the supply chain, affecting fruit farmers and pulp processors alike.

They say the industry is facing a significant challenge due to a sharp decline in demand for its products, resulting in underutilisation of installed production capacity.

The Fruit Juice Council says that the excise duty has backfired, yielding insignificant revenue gains for the government due to declining sales volumes.

A statement by the FJC says, “A 5 percent FED was imposed on the formal juice industry in 2018-19. This was followed by a decline in sales for the packaged juice industry. After the FED was removed, the industry had a growth trajectory for three years. In 2022, it had a turnover of about Rs 60 billion and employed around 10,000 people. The sales were projected to grow to more than Rs 71 billion in 2022-23.

Fruit Juice Council says the imposition of a 20 percent federal excise duty on juices last year alongside the 18 percent sales tax has resulted in a 41 percent drop in industry sales.

“The imposition in the 2023-24 budget of a 20 percent FED on juices alongside the 18 percent GST resulted in a 41 percent drop in industry sales. Sales for the year plummeted to around Rs 49 billion. This decline in sales has rendered the industry unable to utilise its installed production capacity. No new investments were made in 2023-2024 and there are no plans for 2024-25.”

The statement went on to add that in 2022, the industry procured an estimated 100,000 tonnes of mangoes, kinnows, apples, peaches and guava from farmers for conversion into pulp. However, the volume has now declined by almost 50 percent.

“The shrinking business has had and will continue to have an unfavorable impact on sales tax revenue and the allied industries, leading to unemployment. It will negatively impacting fruit farmers and pulp processors,” the statement added.

The FJC says the imposition of the duty has also affected the affordability of the products manufactured by documented industry. The consumers are effectively paying approximately 42 percent of the price as taxes. Consequently, a significant portion of the consumers have shifted to lower-priced, low-quality and potentially unsafe alternatives provided by the undocumented sector, which accounts for nearly 20 percent of the industry’s size.

Packaged juices are also exported to more than 30 countries and there is still room for expansion if the excise duty is abolished.

FJC says the market contraction has resulted in unemployment as several companies have let go workers, especially daily wage workers. It claims that fruit growers and farmers have also been negatively impacted.

According to the Multan Mango Growers’ Association, the FED has led to losses for mango growers, with a decline in fruit purchase by juice manufacturers. “While Grade A category of fruit is considered exportable in terms of size, Grade B is consumed by the juice industry. Following the FED introduction last year, there was a significant decrease in mango purchases by the juice producers,” says Mubashar Durrani, a representative of the Multan Mango Growers’ Association.

“The Consumers’ Association of Pakistan did not approach consumer courts as packed juices are not considered essential food,” says Kaukab Iqbal, the CAP founder and chairman. He says the CAP is willing to discuss a joint strategy with the juice manufacturing industry.

The writer is a Karachi-based journalist. He tweets @ZulfiqarKunbhar