ISLAMABAD : The beverage industry has proposed reducing the Federal Excise Duty (FED) on aerated waters from 20 per cent to 15pc.

It assured that the legitimate beverage industry would generate an additional Rs8 billion in gross tax revenues in the first year and projected cumulative gross tax collections of around Rs63 billion over a three-year period.

In a letter to the Federal Board of Revenue (FBR) and the finance ministry, the Beverages Advisory Foundation (BAF) said that a lower FED rate would expand the tax base and generate higher cumulative tax collections, whereas higher taxes on the beverage industry have led to an increase in the share of the undocumented sector.

The BAF suggested that the government should reduce the FED, and if the projected results are not met by June 2027, the FED could be reverted back.

The industry maintains that when FED stood at 13pc before 2023-24, the sector recorded around 14pc compound annual growth in volumes and 23pc annual growth in tax revenues, while documented companies accounted for about 90pc of the market and 95pc of FED collections.

However, after the duty was increased to 20pc in 2023, volume growth slowed significantly and tax collection growth fell to low single digits.

Whereas, the share of undocumented manufacturers increased to around 20pc of the market while their contributions remained at only about 5pc of FED revenue.

Under the proposed reduction, the industry projects tax collections of approximately Rs185 billion in FY2026-27, an increase of Rs18 billion over the current baseline of Rs167 billion.

The proposal estimates that industry volumes will rise by more than 16pc in the first year, while the documented sector’s share will recover to around 88pc.

The industry forecasts that total tax revenues from sales tax and FED would reach Rs238 billion by FY2028-29, as compared to Rs204 billion if the current 20pc FED rate remains unchanged.

Over the three-year period from FY2026-27 to FY2028-29, cumulative tax collections are projected at Rs633 billion under the reduced-rate scenario, Rs63 billion higher than the Rs570 billion expected under the status quo.

The advisory foundation further argued that the reduction would also encourage investment in distribution networks, trade activation and market expansion rather than increasing manufacturer margins.

It added that the narrower price gap between documented and undocumented producers would also reduce incentives for tax evasion and help bring more businesses into the formal economy.

The budget for the upcoming fiscal year is set to be announced in the coming days, following approval by the National Economic Council (NEC) on June 3.

The government is expected to approve a consolidated national development programme of over Rs3.5 trillion and a macroeconomic framework envisaging economic growth of 4.1pc and inflation of 8.5pc for FY2026–27.