Federal Government Eyes Fiscal Reforms with Proposed Excise Duty Hike on Confectionery and Consumer Goods

Strategic Insights -

The Pakistan government is considering a significant fiscal move to impose Federal Excise Duty (FED) on a range of high-demand consumer goods, including biscuits, cakes, sweets, sauces, and other confectionery products, as part of new revenue-generating measures under the FY26 federal budget. The proposed taxes, including both FED and additional sales tax, could yield up to Rs150 billion in incremental revenue, according to industry estimates. The targeted categories include widely consumed packaged foods such as flavoured milk, chips, dips, ice cream, cereals, and syrups, which are currently outside the excise duty net but have high market penetration.

Key Takeaways:

  • The proposed Federal Excise Duty (FED) on confectionery and consumer goods could yield up to Rs150 billion in incremental revenue, including Rs40.2 billion from FED and Rs7.2 billion from sales tax on the confectionery category.
  • The confectionery category, particularly cakes and sweets, has a market size of Rs201 billion and could yield Rs47.4 billion in tax revenue, while biscuits have a market size of Rs206 billion and are projected to contribute Rs48.6 billion, including Rs41.1 billion in FED.
  • Chips, with a market footprint of Rs96 billion, are expected to contribute Rs22.4 billion, and syrups and other products are also included in the proposed tax net.
  • The strategy is designed to strengthen fiscal consolidation without placing additional burden on essential goods or lower-income households, reflecting a shift in tax policy aimed at broadening the base while maintaining equity.
  • The move comes amid sustained pressure from the International Monetary Fund (IMF) for Pakistan to enhance domestic resource mobilisation by rationalising exemptions and expanding excise coverage.
  • Analysts believe the proposed taxes could ease pressure on already taxed sectors, offer a fairer distribution of the tax burden, and support business continuity, while policymakers hope it will bring in short-term fiscal gains and help diversify and stabilize government revenues over the long term.

Statistics:

  • The proposed taxes could yield up to Rs150 billion in incremental revenue.
  • The confectionery category has a market size of Rs201 billion and could yield Rs47.4 billion in tax revenue, including Rs40.2 billion from FED.
  • Biscuits have a market size of Rs206 billion and are projected to contribute Rs48.6 billion, including Rs41.1 billion in FED.
  • Chips, with a market footprint of Rs96 billion, are expected to contribute Rs22.4 billion.
  • The tax on biscuits, cakes, and sweets could yield Rs40.2 billion from FED and Rs7.2 billion from sales tax.
  • The market size of syrups and other products is not specified in the source.

Sources:

  • Industry estimates suggesting the proposed taxes could yield up to Rs150 billion in incremental revenue.
  • Documents reviewed by industry stakeholders revealing the market size of the confectionery category and the projected tax revenue.
  • Officials familiar with the deliberations, who stated the strategy is designed to strengthen fiscal consolidation without placing additional burden on essential goods or lower-income households.
  • International Monetary Fund (IMF) recommendations for Pakistan to enhance domestic resource mobilisation by rationalising exemptions and expanding excise coverage.