As Pakistan prepares to announce its fiscal year 2025–26 budget, fast-moving consumer goods (FMCG) companies are raising red flags over a reported proposal to impose a 5%–20% Federal Excise Duty (FED) on a broad range of processed food items – including biscuits, confectionery, juices, and ready-to-eat meals.
Industry stakeholders warn that the measure could have far-reaching and damaging consequences for consumers, manufacturers, and the wider economy.
While the government is reportedly eyeing new revenue streams through excise taxation, the industry says this proposal lacks adequate consultation and economic diligence, and may end up doing more harm than good.
Processed and packaged foods—especially biscuits—are staple items for millions of lower-income households in Pakistan. Around 70% of biscuit consumption, for example, comes from socioeconomic segments C, D, and E, with rural areas accounting for nearly 50% of total volume, according to Foresight Household Panel Research.
An excise duty would likely be passed on to consumers, making everyday essentials more expensive. “In a country where food inflation already burdens low-income families, such a tax will hit the most vulnerable the hardest,” said one industry official.
Biscuits are widely consumed in Pakistan as an affordable source of energy, often serving as a substitute for meals in low-income households. Analysts argue that categorizing these everyday items as luxury goods and subjecting them to sin-tax-style excise duties ignores their socio-economic significance, especially for the poor.
According to Pakistan’s latest Economic Survey 2024–25, the country’s per capita income has improved but remains among the lowest globally at $1,824. For comparison, Bangladesh’s provisional estimates place its per capita income at around $2,800—nearly $1,000 higher. Such taxation measures fail to reflect the economic realities faced by a large segment of Pakistan’s population.
Unintended boost to the informal sector
The proposed FED risks pushing price-sensitive consumers toward unregulated, untaxed alternatives. “The informal sector doesn’t comply with food safety or tax regulations, and such a move would drive consumers straight into their hands,” said another industry insider.
The formal food sector is already grappling with a tax burden estimated at 46%, not including rising utility and compliance costs. Further taxation would shrink its competitiveness, giving the informal sector—already growing—a significant edge.
In the juice sector, for instance, the introduction of FED last year saw volumes fall by over 40%, with the informal sector’s market share jumping from under 10% to over 25%.
Industry experts estimate that a 20% FED could lead to a 25% decline in packaged food revenues, 20% job cuts in downstream sectors, and a 15% drop in tax revenues. “Even from a fiscal standpoint, the math doesn’t add up,” warned one executive. “When you factor in lost income tax and sales tax contributions, the net gain to the exchequer is marginal—if not negative.”
The contraction in the formal sector would also hit investment, halt R&D, and undermine productivity-enhancing initiatives. Packaged food factories are already operating below capacity and may be forced to reduce output further or shut operations altogether.
Ripple effects across agriculture, logistics and health: Industry
The packaged food industry supports a wide supply chain that includes agriculture, packaging, transport, and retail. A contraction in this sector would directly impact fruit growers, dairy farmers, packaging manufacturers, and cold-chain logistics providers—multiplying the economic shock across sectors.
Supermarkets and smaller retail outlets may also suffer reduced footfall and declining sales of high-margin packaged goods, affecting overall business viability.
The FED could also have adverse health implications. Packaged foods like biscuits, fortified snacks, and processed dairy products are often enriched with essential nutrients and are safer than unregulated alternatives.
Rising prices could push consumers toward street-vended or unhygienic alternatives with poor nutritional profiles, worsening public health outcomes, especially among children and working adults.
The industry is urging the government to reconsider the FED proposal or adopt a more calibrated, consultative policy approach. “What’s needed is not just revenue-generation but revenue-sustainability. You can’t tax the sector into collapse and expect long-term fiscal gains,” said an industry spokesperson.
With Pakistan’s economy already in a precarious state, experts warn that short-sighted tax measures could undermine the very recovery they are meant to support. A poorly designed FED on essential packaged foods could erode the formal sector, hurt public health, destabilize the supply chain, and reduce—not increase—government revenues.
