The Competition Commission of Pakistan (CCP) has issued a policy note to the government recommending it to withdraw the imposition of ‘capacity tax’ on the beverage industry. Soon after Dr Joseph Wilson took charge as an acting chairman, the CCP became functional again and took notice of various news items raising concerns by the beverage industry on the imposition of Federal Excise Duty (FED) and Sales Tax vide notification SRO No. 649(I)/2013 dated 9th July, 2013 on production/installed capacity instead of actual sales. As per the SRO, factories having foreign or mix of foreign and local origin filling machines have to pay PKR 4,700,000, factories exclusively having local origin filling machines to pay PKR 3,760,000, and factories having filling machines with less than 40 filling valves have to pay PKR 1,175,000. The commission noted that the levy based on the installed capacity results in imposition of a fixed tax on manufacturing units with varying levels of actual production and thus, discriminates against the smaller manufacturers. This also results in a number of competition concerns. The commission noted that the capacity tax, which was introduced in 1991, and later withdrawn in 1994, had become a major reason for bankruptcy and closing down of many local competitors as around 15 local beverage plants had ceased operations. Today, production in the beverage industry was confined to a few cities – Lahore, Multan, Lala Musa and other areas – and it was not viable for them to reach out and market their products all over Pakistan. The commission believes that the capacity tax results in gains for large scale manufacturers, who hold a major share in the market, use high speed fillers, and produce at higher rates of capacity utilization (up to 80-100 per cent). On the other hand, a small manufacturer who has less demand in the market and is producing less than half of its production capacity will also have to pay the same fixed rate of tax. Therefore, a fixed rate of tax would reduce the tax burden of large manufacturers and increase it for small manufacturers.
