The federal government is preparing to introduce Federal Excise Duty (FED) and additional sales tax on various packaged food items in the upcoming 2025-26 budget, aiming to generate Rs. 150 billion in additional revenue.

Taxation on High-Consumption Food Categories

The proposed tax measures will focus on cakes, sweets (mithai), biscuits, sauces, dips, flavored milk, cereals, syrups, ice cream, and chips—items that have previously been untaxed or lightly taxed. The government sees this move as a way to increase fiscal revenues while minimizing the burden on lower-income households.

Projected Revenue from Key Categories

Industry estimates suggest the following revenue contributions from the new tax structure:

• Confectionery (cakes & sweets) – Expected to generate Rs. 47.4 billion, including Rs. 40.2 billion in FED and Rs. 7.2 billion in sales tax.
• Biscuits – With a market size of Rs. 206 billion, this category could yield Rs. 48.6 billion, comprising Rs. 41.1 billion in FED (at 20%) and Rs. 7.4 billion in sales tax.
• Chips – Estimated to contribute Rs. 22.4 billion, including Rs. 19 billion in FED and Rs. 3.4 billion in sales tax.

Balancing Revenue Growth and Consumer Impact

The government aims to calibrate the tax structure carefully to avoid affecting essential food products or disproportionately impacting lower-income groups. Officials believe this approach will support business sustainability, stimulate economic activity, and create a more stable revenue base.

The final tax framework is expected to be announced in the FY26 budget, with further refinements based on industry feedback and economic assessments