High taxes in beverage industry discouraging investment

In an emerging economy like Bangladesh, the beverage industry is more than just a consumer goods sector. It is closely linked to investment, employment, manufacturing, packaging, transportation and cold-chain infrastructure. A stable and investment-friendly beverage industry can contribute significantly to industrial growth and government revenue generation. However, the country’s increasingly high and inconsistent tax regime is creating serious challenges for the sector and discouraging both local and foreign investment.

Bangladesh already struggles with low foreign direct investment (FDI) compared to other emerging economies. In the last fiscal year, the country’s net FDI stood at only 0.4 percent of GDP, while Vietnam attracted more than 4 percent. Economists and investors have repeatedly identified high taxes, policy unpredictability and a complex regulatory structure as key reasons behind Bangladesh’s weak investment environment.

The beverage industry has become one of the clearest examples of this problem. Over the last three fiscal years, taxes on the carbonated beverage sector have increased continuously. The sharp rise in duties and taxes has pushed up retail prices, reduced consumer demand and weakened overall business performance. As sales decline, companies are facing lower revenues and shrinking profits, creating uncertainty around existing investments and discouraging plans for future expansion.

Ironically, the government’s objective of increasing revenue through higher taxes has not been achieved. Instead, excessive taxation has slowed production and consumption, resulting in lower revenue collection from the sector. Industry stakeholders argue that sustainable revenue growth cannot be achieved through aggressive taxation alone. Rather, a balanced and rational tax structure is necessary to support industrial growth, create employment and encourage investment while ensuring long-term revenue generation for the government.

Before FY2023–24, the minimum tax on gross sales for carbonated beverage companies was 0.60 percent, similar to many other industries. However, in FY2023–24, the rate was increased fivefold to 3 percent. In FY2024–25, supplementary duty on soft drinks was raised from 25 percent to 30 percent. In FY2025–26, customs duty on beverage concentrate increased from 10 percent to 15 percent. Alongside these taxes, companies also pay 15 percent value-added tax (VAT) throughout the supply chain.

At the same time, policy inconsistencies have further complicated the situation. Although supplementary duty on locally produced beverages was increased, the government reduced supplementary duty on imported ready-made beverages by 50 percent in FY2025–26. This has exposed local manufacturers to unfair competition and contradicted the government’s stated objective of promoting domestic industries. Similarly, supplementary duty on locally produced ice cream was reduced despite ice cream containing higher sugar content than carbonated drinks. Such inconsistencies have raised concerns among investors regarding policy predictability and fairness.

Overall, the total tax burden on Bangladesh’s beverage industry is now estimated at around 53 percent, making it one of the highest in the world. In comparison, the overall tax burden is around 40 percent in India, 38 percent in Nepal, 30 percent in Bhutan and only 6 percent in the Maldives. In many Southeast Asian emerging economies, beverage sector taxation remains close to 20 percent.

An analysis of government revenue collection from the beverage industry shows that the sector had maintained consistent annual growth before the recent tax hikes. In FY2022–23, government revenue collection from the industry reached Tk 1,533 crore. However, after the increase in minimum tax, revenue collection declined by nearly 20 percent to Tk 1,237 crore in FY2023–24. The same trend continued in FY2024–25. Industry operators say higher taxes, rising global raw material prices and the depreciation of the Bangladeshi taka against the US dollar have together created significant financial pressure on companies.

The beverage sector also faces increasing pressure from informal and illegal market activities. Industry representatives claim that the high tax burden has encouraged the illegal entry of foreign carbonated beverages and energy drinks into Bangladesh. This not only causes revenue losses for the government but also creates an uneven competitive environment where compliant companies bear a disproportionate share of the tax burden while non-compliant operators continue to evade regulations.

Stakeholders further argue that soft drinks are often unfairly blamed for obesity in order to justify higher taxation. Yet annual per capita soft drink consumption in Bangladesh remains extremely low at only 8.4 glasses. Industry estimates suggest that soft drinks contribute less than 0.05 percent of annual calorie intake, indicating a very limited impact on overall dietary habits and obesity levels.

According to industry estimates, the size of Bangladesh’s beverage market has already declined from Tk 10,000 crore to Tk 8,000 crore in recent years. The industry directly and indirectly supports nearly 1.4 million jobs. Investors warn that excessive taxation is discouraging new investment at a time when Bangladesh urgently needs industrial expansion and employment generation. The nearly 40 percent depreciation of the taka against the US dollar has further increased the cost of imported raw materials, weakened consumer purchasing power and reduced company earnings.

To address these challenges, industry stakeholders have submitted several proposals to the National Board of Revenue (NBR) ahead of the FY2026–27 national budget. They have proposed reducing customs duty on beverage concentrate from 15 percent back to 10 percent, lowering the minimum tax on gross sales from 3 percent to 1 percent and reducing supplementary duty from 30 percent to 25 percent. They have also requested the withdrawal of supplementary duty on bottled water, considering it an essential product.

Investors believe that adopting a more moderate and predictable tax structure would align Bangladesh more closely with emerging economies such as Thailand, Malaysia and Vietnam. A rational tax policy would improve affordability, increase demand, encourage formal sector compliance and stimulate investment and production. In the long run, this could ultimately help the government achieve higher and more sustainable revenue growth while ensuring the healthy expansion of one of the country’s important consumer industries.