LAHORE: High customs tariffs and massive regulatory duty on legitimate coffee imports has created a large parallel market in the country for smuggled coffee brands, undercutting the documented, tax-compliant businesses.

Besides, the illicit coffee trade also undermines provisions of SRO-237 of 2019, which was issued to ensure that imported food items met certain labeling and halal certification standards and had at least two-thirds of their shelflife at the time of import.

In view of the situation, the industry has recently approached the govern-ment for rationalisation of the coffee taxes, which will also help Pakistan become a part of the global supply chain of the world`s most popular drink.

`The reduction in higher import taxes, especially regulatory duty imposed since 2021, will facilitate significant new investments in local coffee cultivation, value addition, packaging, branding, and exports in next few years,` a food company executive says.

At present, the government charges up to 53pc -11pc customs duty, 2pc additional customs duty and 40pc regulatory duty -of the value of coffee imports as taxes on the finished (ready-to-drink) products. In case of imports from a country having preferential or free tradeagreement with Pakistan, the total taxburdenisreducedto42pe dueto removal of customs duty. Likewise, the totaltaxburden onthebulk coffee imports stands at 28pc because of the reduced regulatory duty rate to 15pc to encourage value addition.

The heavy import tax burden on both finished and raw coffee compares with just 11pc customs duty and 2pc additional customs duty on tea.

`Disproportionately heavy regulatory duty is hampering the coffee market expansion in the country despite its growing popularity and demand amongst the younger population,` the executive noted.

The industry has recently approached the commerce ministry with a proposal to reduce taxationon bulk coffee import for value addition and re-export part of this to Europe, North America, Central Asia, Afghanistan, Iraq, Japan and Australia.

`Rationalising duties can spur local packaging and branding efforts, potentially boosting exports and attracting foreign investment.

The export opportunities will encourage more coffee cultivation in the Potohar region of Punjab, mirroring successful models in South America and Africa,` the brand manager of another firm argued.

He insisted that the FBR`s policy of slapping extremely high regulatory duty on coffee imports to extracttaxrevenuesrunscounterto the commerce and industry minis-tries goal of import substitution and export promotion.

`In this situation the role of National Tariff Commission becomes very important. Among other functions of the commission, it is required to advise the government on tariffs and other trade measures to assist the domestic industry improve its competitiveness, trade remedy actions being faced by domestic producers and exporters, rationalisation of tariff and removal of tariff anomalies. It is time the commission looked into the regulatory duty on coffee and took remedial measures in line with broader economic objectives to unleash the market potential and boost exports,` the brand manager concluded.v