ISLAMABAD: High taxes are promoting sales of fake products, the beverage sector complained to the parliamentary body while demanding that the Federal Board of Revenue (FBR) needs to rationalise indirect taxes on carbonated drinks.

In a letter to the National Assembly Standing Committee on Finance, a leading beverage company said the corporate income tax rate is exceptionally high in Pakistan, at around 34 per cent, unlike the global average of 22-23pc.

The letter said that there is a need to revise the corporate tax structure as irrational increase in taxes encourage more tax evasion and growth of fake products, upsetting the level-playing field in the industry, thereby resulting in serious health implications for the consumers.

The beverage company cited the example of a recent raid by Punjab Food Authority on a factory in Lahore seizing 400,000 spurious soft-drink bottles. The factory had sold around 3.37 million fake soft-drink bottles under well-known brand names.

The letter has stressed that growth of counterfeit products can only be avoided through a rational tax structure designed after consultation with the stakeholders of the particular product.

On the other hand, indirect taxes like Federal Excise Duty (FED) at 11pc on various goods, and high sales tax of 17pc have pushed up retail prices while reduced the purchasing power of ordinary consumers in Pakistan.

“Instead of generating revenue on the basis of high rate of taxes, the best way out is to rationalise duties and tax rate to promote retail sales, and generate tax on the volume of business,” the letter added.

“Reduction in corporate tax rate will not only encourage the entrepreneurs to pump in more investment but may also help the other allied industries to grow accordingly.”

The letter has also highlighted that the beverage industry has already invested more than $500m in expanding the manufacturing capability in Pakistan, but decried that inconsistent policies and inappropriate taxes are discouraging further investments.

Pakistan is estimated to be among the top 10 beverage consumption in the world.

Published in Dawn, February 9th, 2018