Food taxes may further expand informal sector, say experts

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KARACHI: Although the government is being sold as a courageous precision measure on the government’s tax imposing taxes and the proposed excise duty on highly processed foods, industry experts have warned that these policies are less about reforms and more about revenue, and they can do more good.

Already in place, 15kg per kilogram of federal excise duty (feed) on sugar, and this proposed 5.0 % has influenced the construction sector of Pakistan inadvertently, Pakistan’s formal, tax sector.

Informal business, which is about 30-35 % of the country’s economy, avoids such regulatory surveillance and taxation to a great extent. The result is the result of an uneven market where compliance companies bear the burden, while unorganized sellers take advantage of competitive price.

Zahid Iqbal, chairperson of the Pakistan Association of Food Industries (PAFI), echoed the concerns, “The proposed 5.0 percent [FED] Ultra processed food is an inappropriate burden on Pakistan’s formal food industry that is in accordance with safety standards, pays taxes and maintains massive jobs. This is a sector that contributes to more than Rs 200 billion annually, produces more than Rs 1,000 billion in business, and provides direct jobs to more than 100,000 people nationwide. It also supports coalition industries such as packaging, logistics, and retailers, and plays an important role in earning foreign exchange through exports.

He added, “We are already seeing the harmful effects of Rs 15/kg on sugar, which has interrupted the confectionery industry by promoting input costs and reducing production capacity.” “Now, now, with another flat tax, the pressure on the formal business will only intensify. Meanwhile, the informal sector and the gray market channels are continuing to unite, distort competitiveness and to comply with the industry. Promoting taxes to increase the inquiry; tax compliance will be complied with the operations, the formal tax will be restricted to the safe and affordable products.

Inflation is already squeezing the domestic budget, new tax prices increase further. For millions of low -income Pakistanis, cheap packaged foods are the only source of permanent nutrition. Sudden rising prices can push consumers towards a cheap, informal sector offer, which is neither regular for safety nor monitoring for nutritional content.

Its implications are beyond access to domestic food. The country’s processed food sector is gaining traction as a potential export engine, especially in regional markets in the Middle East and Central Asia. The department also supports thousands of formal jobs in manufacturing, distribution and retail.

Industries insiders claim that new taxes, especially without policy reforms, discourage investment, prevent innovation and reduce global competitiveness, reducing wider economic goals during the period, when Pakistan needs immediate arrival and export of foreign exchange.

Instead of relying on blanket taxing, analysts say, a more efficient approach will be to promote the correction of high -level sugar, salt and fat products. Public investment in nutritional education, especially in schools and low -income communities, can help change the behavior of long -term consumers. At the same time, it is important to strengthen the monitoring of the informal sector to ensure that health policies do not simply push harmful consumption underground.