Fruit farmers suffer as taxation policies squeeze juice industry

Shahid Shah
Saturday, May 18, 2024

KARACHI: The fruit farmers are struggling to cope with the impact of regressive taxation policies on the juice industry, leading to a decline in the market for surplus produce and export leftovers, industry officials said on Friday.

With the agricultural sector already struggling from poor crop management in light of the wheat crisis, fruit farmers are now bearing the brunt of regressive taxation policies. The market for surplus produce and export leftovers has drastically declined since the last federal budget imposed a 20 percent federal excise duty (FED) on fruit juice manufacturers.

The juice industry has minimised its purchase of fruit pulp, leading pulp manufacturers to reduce fruit procurement due to low volumes. Traditionally, fruit orchard owners sold their surplus produce and higher yields to pulp makers, who then sold it to juice companies, creating a value chain that benefited local growers. More than 100,000 tonnes of fruits, including guava, mangoes, apples, oranges, and strawberries, are purchased annually.

The local juice beverage industry has faced escalating taxation in recent years. The 2023-2024 budget raised the FED from 5 percent (plus 17 percent sales tax) in 2018-19 to 20 percent (plus 18 percent sales tax). The total impact of taxes becomes 42 percent, as sales tax is charged after 20 percent FED.

Policymakers overlooked the combined impact of this increased taxation, a more than 50 percent rise in raw material costs, and inflationary pressures on prices. Instead of boosting overall tax revenue, this has led to a diminished tax contribution from beverage sector revenues to the national exchequer.

The industry officials said that there has been a decline of 41 percent in volume after the imposition of the CED while industry production remains at a halt for over 100 days in a year. Before the recent hike in FED, the fruit juice industry was flourishing, with a turnover of approximately Rs60 billion, investments totalling Rs40 billion, and significant new job creation. From the consumer standpoint, heightened competition had broadened the product range to include healthier, sugar-restricted options.

“Since the FED was implemented, the industry has faced significant growth setbacks," Rahat Hussain, Fruit Juice Council spokesperson told The News. "Sales have dropped, leading to a 40 percent reduction in volume, which has rippled through the industry. Many companies are now operating below full production capacity, and new investments have been delayed.”

Farmers from Multan have been decrying the imminent wastage of surplus mangoes in the impending harvest season, as they have been unable to secure arrangements with pulping units, which typically book produce in advance.

Fayyaz Chaudhry, who owns 20 acres of land near Multa,n growing two to three varieties of Chaunsa, most of which are exported, said that the yield is increasing year on year, but there is wastage as mangoes are perishable, and there aren’t proper storage units.“Most of our produce is exported, but demands vary, and sometimes there is a decline as well. In those times, we sell it to local pulp producers who sell it to juice makers.”