ISLAMABAD: The federal government is currently evaluating a significant fiscal maneuver to impose Federal Excise Duty (FED) on a broad range of high-demand consumer goods, including biscuits, cakes, sweets, sauces, and other confectionery products. This move is being considered as part of new revenue-generating measures slated for the upcoming FY26 federal budget.
According to preliminary industry estimates, these proposed new taxes, which would include both FED and additional sales tax components, could collectively yield up to an impressive Rs150 billion in incremental revenue for the national exchequer. The targeted product categories span a wide spectrum of widely consumed packaged foods such as flavored milk, chips, dips, ice cream, cereals, and syrups. These items are currently outside the traditional excise duty net but boast high market penetration across the country.
Key Categories & revenue projections
Documents reviewed by industry stakeholders indicate detailed projections for potential revenue generation from specific categories. The confectionery sector, particularly cakes and sweets, which is experiencing rapid growth, especially in Punjab, represents a substantial market size of Rs201 billion. This category alone could potentially yield an estimated Rs47.4 billion in new tax revenue, comprising Rs40.2 billion from FED and Rs7.2 billion from sales tax.
Similarly, the chips market, with an estimated footprint of Rs96 billion, is projected to contribute Rs22.4 billion in taxes. Biscuits, a significantly larger market valued at Rs206 billion, are expected to add a substantial Rs48.6 billion to government revenues, including an estimated Rs41.1 billion from FED (assuming an indicative rate of 20%) and Rs7.4 billion from sales tax.
Fiscal consolidation & equitable burden
Officials familiar with the ongoing deliberations stated that the proposed strategy is meticulously designed to strengthen fiscal consolidation without imposing an additional burden on essential goods or disproportionately affecting lower-income households. The strategic focus on discretionary and processed consumer items reflects a deliberate shift in tax policy aimed at broadening the tax base while striving to maintain equity in the distribution of the tax burden.
This proposed move comes amid sustained pressure from the International Monetary Fund (IMF), which has consistently urged Pakistan to enhance its domestic resource mobilization efforts. This includes rationalizing existing tax exemptions and significantly expanding the coverage of excise duties to previously untaxed sectors. Analysts suggest that taxing these currently untaxed but high-consumption categories could alleviate pressure on sectors that are already heavily taxed, offer a fairer distribution of the overall tax burden, and potentially support business continuity by avoiding further increases on existing taxable goods.
Policymakers express hope that this rebalancing of the tax structure will not only generate significant short-term fiscal gains but also contribute to diversifying and stabilizing government revenues over the long term.
The final decision regarding the imposition of these new excise duties is expected to be formally reflected in the upcoming federal budget, which is scheduled to be presented in June.
