The federal government has abolished the 20 percent Federal Excise Duty (FED) on low-sugar sports and hydration drinks through the Finance Act 2026, bringing to an end a long-running tax dispute between the Federal Board of Revenue (FBR) and multinational beverage companies.
The exemption was introduced through an amendment to the Finance Bill 2026, excluding mineral waters, aerated waters, hydration drinks and electrolyte beverages containing artificial sweeteners or sugar of up to 5 grams per 100 milliliters from the 20 percent FED.
Previously, all mineral waters, aerated waters, hydration drinks and electrolyte beverages were subject to the excise duty regardless of their sugar or sweetener content.
According to sources, the dispute centered on sports drink brands such as Gatorade and Revive, marketed by PepsiCo and Coca-Cola, respectively. The companies argued that these products contain only limited amounts of sugar and are formulated primarily for hydration and electrolyte replenishment, making them different from conventional sugary beverages.
The FBR, however, maintained that the products fell within the scope of the 20 percent FED applicable to sugary drinks and had repeatedly sought to recover the tax.
The amendment effectively settles the dispute in favour of the companies by excluding qualifying low-sugar hydration and electrolyte beverages from the excise duty.
The amendment to the Federal Excise Act exempts “mineral waters, aerated waters, hydration drinks, or electrolyte beverages specifically formulated to support hydration and electrolyte replenishment containing artificial sweetener or sugar, or both, not exceeding 5g per 100ml” from the levy.
The development follows concerns raised by the US Embassy in Islamabad with the Ministry of Finance over tax and customs issues affecting multinational beverage companies. According to sources, the embassy urged the government to resolve customs classification disputes and Federal Excise Duty-related issues to support PepsiCo Pakistan’s manufacturing operations and encourage future foreign direct investment (FDI).
The decision comes at a time when Pakistan has witnessed several multinational companies scale down, divest or exit their local operations in recent years.
