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Correction in tax policies can help double its present size in 3-5 years

Dec 10 - 16 , 2001

The beverage industry in Pakistan, currently having a size of little over 120 million cases per annum with an annual growth of around 10-15 per cent, has the potential to double its size in the next 3-5 years, if the government's taxation policies towards this industry are corrected.

This was stated by Siraj Kassam Teli, Chairman Pakistan Beverage manufacturers Association in an interview with Pakistan & Gulf Economist (PAGE).

The thrust of the interview was to find out the present and future of Beverage Industry of Pakistan as regards to taxation policies, growth in this changing scenario of the region and the role of foreign and local brands.

"Let me start by letting you know briefly the ground realities of this industry in comparison to other neighbouring countries at present, said Siraj Teli, which I believe if the government taxation policies towards this industry are corrected this industry can double its size in the next 3-5 years, which at the moment is little over 120 million cases per annum with an annual growth of around 10-15 per cent.

"Let me also tell you that this industry was growing at the rate of 25 per cent every year but now this growth has gone down instead, because of excessive taxation policy on this industry, which is 36 per cent of the retail price. Continuing his point of view Siraj Teli said, let me elaborate this very important aspect of this industry, which is the core issue, not allowing this industry to grow as per its potential.

The beverage industry at the moment has very low per capita consumption of 20 serves whereas in other countries of our region it varies from120-250 on the basis of single serve of 250 ml.

This is definitely due to the heavy taxation, as the price of the product is very important and especially in our country where clean drinking water is not available and our products has to be affordable to a common man which it is not at moment due to 36 per cent of taxation, whereas in this region taxes vary from 8-15 per cent of the retail price.

Today when the economical conditions all around the world are in recession and this product price is very much sensitive and elastic to the retail price.

Beverage industry has in the past provided to the government that it works with better growths if we follow the supply side of economics by bringing down the rates of taxation being able to reduce or maintain the retail price at such a level which in return will make the volume of sales of this industry grow fast which ultimately will make the revenue of the government to grow as well.

Unfortunately this experience which is on record, has not helped the planners in Central Board of Revenue (CBR) and they have kept on increasing tax rates and today we are paying 15 per cent central excise duty as well as 18 per cent sales tax which in effect calculated works out to be 36 per cent of retail price. Mind you this industry is also suffering from double taxation, with 2 different levies as mentioned above, which you will not find anywhere else in the world, he regretted.

Beverage Industry has not been able to increase its retail price over the last 4 years, said Siraj Teli, due to the risk of losing growth, and kept on marketing/ strategic policies of different packages etc. to compensate in its costs but now we have reached to a situation where we cannot absorb all the cost inputs any more as the growth has gone down and it will need to increase the retail price and there are chances that this growth will further decline and ultimately the revenue of the government will go down as well, he sounded a note of warning.

Therefore, we would like the government and CBR to abolish excise duty as we have sales tax on our products as well which is double taxation, this in turn will allow us to readjust our retail price and maintain at an affordable level which will make sure that the industry grows at a faster and higher rate which ultimately will increase the total revenue of the government which at the moment is over Rs5.2 billion.

"It must be noted here that the beverage industry is the 3rd largest revenue participant of CBR and this I am talking about only of sales tax and excise duty" Siraj observed.

On another question Siraj Teli said that this industry has tremendously changed in the last 10 years due to more aggressive participation and marketing strategies of the two multinational brands known all around the world i.e. Pepsi and Coke. Currently, 95 per cent of the market share is held by these two brands and the rest by some other foreign and local brands, therefore, your point of view is correct as the local brands of this country are also not being given any special incentives to grow. The focus of the government and its economic policies is on export-oriented industries only which I believe is correct but at the same time the government and policy makers should also keep in mind that all those industries which may not be export oriented but to generate economic activity inside the country should also not be neglected, that is industries like construction and consumer product industry such as confectioneries, food and beverages.

"Due to the recession the government should provide special incentives to the above mentioned local industries by way of reduction in taxes to provide a chance for them to push forward their growth by maintaining affordable prices to generate maximum economic activity, especially the food items which can be kept within the reach of common man".

Answering another question, Siraj Teli said, that there are 34 beverage plants in the country and this is one industry, which is very well organized. Job oriented in nature, the beverage industry employees over 500,000 people directly and indirectly and also supports many other up/down stream industries such as crown corks, glass bottles, plastic shells, sugar, transport, advertising and media, P.E.T bottles, concentrates etc. due to this industry a huge number of outlets/shops are supported to generate wide-spread economic activity in the country, Siraj Teli said.

On the point of what exactly this industry needs from the government to make this industry grow and double its size in the next 3-5 years is just one thing: Abolish central excise duty, which will reduce the total impact of tax and bring down the ratio of 36 per cent of the retail price to around 20 per cent, and at the same time will solve the matter of double taxation, and in return instead of increasing the price, we will adjust our price structure to such a level which will be affordable for the consumers and at the same time use the savings for new marketing strategies and push this industry to grow at least over 30 per cent per annum which in turn will compensate and increase the government revenue.

KCCI affairs

Siraj Kassam Teli, pioneer leader of the Businessmen Group (BMG) in the Karachi Chamber of Commerce & Industry (KCCI) said that the purpose of the formation of BMG in 1998 was with an agenda to bring about changes in KCCI in such a manner to make sure that the real representative people of the Business and the Industrial Community participate and are provided opportunity on merit only. This in return will help and create real participation of majority of the members and the status of KCCI and its image will be built to the extend it deserves being the largest Chamber of the country and also to extend its participation in the government exchequer which is to the tune of 70 per cent of the total revenue of the country, Siraj said.

Siraj Kassam Teli, leader of the Business Community, said that prior to 1998 KCCI had lost its voice due to participation and control of a limited number of people who were controlling the Chamber and use to provide services to their friends and close ones through their Managing Committee Members who were elected and promoted without any merit nor any other criteria of publish service except being their friends, family members or even their employees and that also through an election of turn out of around 700-800 voters, as the General Body members had lost interest in the Chamber due to their above deeds. This also was the reason that since all these people were mostly concentrating on their personal relations and work for their dear and near ones, the government functionaries ever used to give them the due attention because of their deeds and also due to this attitude of theirs. The government functionaries use to take advantage and the real issues and problems of the Business & Industrial Community of Karachi were never being solved.

He said that due to their above mentioned way of working the traders, industrialists & businessmen of Karachi lost their interests and confidence in KCCI which ultimately resulted in a very low turn out in annual elections, and since the formation of BMG in 1998, we have brought in new spirit of participation through injection of genuine representatives and mobilization of the General Body members of KCCI.

Siraj Teli said that within a short span of three years, we have contested 4 General Elections and by the Grace of Almighty Allah we have won all of them with the results as 7 out of 10 in September 1998 with a turn out of 2979 votes and these two elections were contested against the Businessmen Panel of Tariq Saeed. The 3rd elections the BMG contested against some independents and the result was 10 out of 10 in September 2000 with a turn out of 1900 votes. This year in September 2001 the elections were contested against the break-away group of BMG led by S.M. Muneer who also joined hands with Businessmen Panel of Tariq Saeed, we won 8 out of 8 i.e. all the General Seats with a record breaking turn out of 3189 votes and no elections were held on the Group Seat due to DTO's order and there is a dispute on the Town Associations Seat due to court cases by the three out of territorial jurisdiction Town Associations, which were encroached upon KCCI by vested interests of the break-away group and the point to be noted is that even after a heavy mandate of the General Body against them, they are pursuing in courts to save those bogus town associations which in effect will not make any difference in the power corridors of the Chamber, but can only create minor hurdles in the way of providing services to the members, he regretted.

Siraj Teli said "our job is to send good people into the corridors of Chamber and make sure that they are capable and understand the problems of the Business Community and at the same time are able to present them to the concerned government departments in such a manner to get them resolved.

"Our goal is to make the institution of KCCI, strong, vibrant and with such a voice that Karachi's interests are protected and all the economic/taxation policies of the government are consulted with KCCI before formulation, as it is our due right being the largest Chamber of the country with 70 per cent revenue participation, and Insha-Allah we will achieve this target very soon", he said with confidence.