Firms in the formal food sector have raised strong objections to a proposed 5% Federal Excise Duty (FED) on ultra-processed foods. They believe that the move could undermine export potential and cripple tax-paying businesses that are already suffering because of rising costs and declining demand.
The proposal is expected to be part of the upcoming federal budget, and the government is pitching the levy as a “public health measure” aimed at reducing the consumption of sugary and highly processed foods. However, industry leaders argue that the tax is unlikely to bring about meaningful changes in the public’s dietary behavior, and is more likely to damage the country's industrial and export base.
“The proposed 5% Federal Excise Duty on ultra-processed foods places an undue burden on Pakistan’s formal food industry, which complies with safety standards, pays taxes, and sustains large-scale employment,” said Zahid Iqbal, chairman of the Pakistan Association of Food Industries (PAFI), the body representing leading food and beverage manufacturers. “This is a sector that contributes more than Rs200 billion in taxes annually, generates more than Rs1 trillion in turnover, and provides direct employment to over 100,000 individuals across the country. It also supports allied industries like packaging, logistics, and retail, and plays a crucial role in earning foreign exchange through exports.”
The PAFI chief warned that the industry was already seeing the damaging effects of Rs15/kg excise duty on sugar, which he said had disrupted the confectionery industry by inflating input costs and reducing production viability.
It is pertinent to mention here that Pakistan’s processed food exports, ranging from snacks and cereals to ready-to-eat items, have shown steady growth in recent years, particularly in markets across the Gulf and Central Asia. With traditional exports such as textiles losing ground due to high production costs, the food sector is being seen as a promising driver of export-led recovery.
However, stakeholders argue that the new tax could disrupt that momentum by inflating prices and making Pakistani products less competitive globally. Beyond exports, the tax also threatens affordability in the local market. With inflation already testing the limits of household budgets, any further increase in processed food prices could hit low-income groups the hardest.
Many may turn to cheaper, unsafe alternatives available in the market through unregulated vendors, a risk that ironically contradicts the government’s stated health goals. In such a situation, the informal sector is likely to remain unaffected by this tax, which would allow it to undercut formal businesses even further. That would create an uneven playing field and distort the market.
As the government finalizes its budget strategy, food industry associations are now urging policymakers to rethink the measure and prioritize a framework that balances public health goals with economic competitiveness. This makes room for a more targeted approach that could prevent damage to a sector that is increasingly central to Pakistan’s economic resilience.
