FED on processed foods: nutritional reform or revenue racket?

Business Recorder

29-05-2025

Pakistan's latest policy brainwave is to slap an excise duty on processed and packaged food products and call it a public health intervention. This is not just lazy, it is dangerous. The proposed Federal Excise Duty (FED) on over 50 categories of processed food is not public health policy. It is fiscal adventurism, masquerading as nutritional reform. And unless called out, it risks doing more harm than good.
Let us not mince words. Pakistan is hurtling toward a public health catastrophe. It now ranks among the world's top three countries in diabetes prevalence, while cardiovascular disease is responsible for one in three deaths. Sugar, salt, and trans fats are the real pandemic. But treating the entire formal food industry as the villain, without nuance or scientific basis, is lazy governance—not reform.
If the real target is unhealthy food, then policy design must reflect that specificity. The government has circulated proposed nutrient thresholds for sugar, sodium, fat, and other risk-linked compounds. But these exist only as draft technical markers. There is no binding notification, no declared compliance timeline, and no roadmap for enforcement. Nor is there a legally mandated front-of-pack labelling regime or any mass-market education campaign. Rushing into fiscal penalties while the regulatory groundwork remains unfinished is like erecting toll booths before building roads.
Price elasticity is real. If the cost of regulated, packaged foods rises, low-income consumers may switch to cheaper and unregulated informal alternatives. The result? Possibly no change in sugar or fat consumption. Just a shift in source—from visible and reformable, to invisible and unchecked. Any policymaker unaware of this trade-off has no business being near public health design.
Global evidence supports sin taxes—but only when designed intelligently. Countries such as Mexico, Chile, and the UK offer lessons worth learning. Their success did not stem from excise duties alone. It came from integrated design: nutrient-threshold-based taxes, mandatory front-of-pack labelling, credible market awareness campaigns, and reformulation incentives that helped industry transition. These countries also had the institutional muscle to enforce rules, verify compliance, and track changing trends in consumer behavior. In contrast, Pakistan's current food regulation ecosystem lacks even basic dietary consumption data, let alone enforcement capacity.
Even the IMF, in its May 2025 Staff Report, does not specifically recommend excise as a tool for public health improvement. It does endorse broadening the base of indirect taxation and bringing high-consumption, non-essential items into the tax net. That much is true. But that endorsement is fiscal, not nutritional. It is about revenue targets, not sodium levels. To position this tax as IMF-compliant health reform would be opportunism at best.
Any serious food policy must begin with a national awareness regime grounded in mandatory front-of-pack labelling, coupled with clear and enforceable nutritional guidelines. This must precede any penalizing regime of sin taxes by several years. Labelling must not be an afterthought—it must be the first policy milestone. Second, the objective of excise taxation should never be to raise revenue. It must be to steer both market production and consumer behavior through targeted price signals. And any revenue that is collected must be hypothecated—not absorbed into the federal black hole—but reinvested into the food system. This includes funding industry incentives for reformulation, compliance grants for small manufacturers, and sustained consumer awareness efforts. A stick-and-carrot model must replace the current one-size-fits-all bludgeon.
If health is the objective, then let us start acting like it. That begins with defining what qualifies as nutritionally harmful, and enforcing those standards consistently across all food categories. If the state, in its infinite wisdom and scientific rigour, has conclusively determined—based on global and domestic evidence—that ingredients such as refined sugar, sodium, and transfat-heavy palm oil pose critical public health threats, then address the problem at its root. Do not just penalize selective formal usage of these ingredients through excise, while ignoring their unchecked and far more pervasive use in the informal commercial sector. If the goal is to cut off the problem at the source, why only tax its most visible—and already overtaxed—manifestation, while ignoring the black hole of informal consumption?
Let us also move past declarative wishlists. A serious policy would phase in nutrient-based excise, tied to verifiable thresholds. It would align fiscal incentives with reformulation behavior. It would make labelling legally binding, not optional. It would deploy social marketing campaigns to change demand. And it would collect real dietary consumption data to recalibrate policy over time. Otherwise, policymakers are just throwing darts in the dark and hoping they land on public health.
More importantly, any move must acknowledge the trade-offs. Formal food manufacturers are already under scrutiny. They are visible, auditable, and arguably the only part of the system that can be nudged toward compliance. Penalizing them without fixing the regulatory vacuum in the informal sector is a recipe for consumer substitution, not healthier diets.
This is not a defense of processed food. This is a defense of coherent policy. If certain nutritional elements are now considered threats to national health, then tax them—everywhere, not just where it is convenient. Use science. Use data. Consult broadly. And stop pretending that punitive taxation is reform. It is not. At best, it is a tool. But without strategy, it is just a blunt object wielded in a dark room.
Pakistan does not need more taxes disguised as concern. It needs a real national nutrition policy—one that is dynamic, adaptive, and grounded in evidence, not optics. Taxing taste, without strategy, will only entrench the very problem it claims to fix.