Govt Ends 20% Sports Drinks Tax After US Pressure

The federal government has abolished the 20 percent federal excise duty (FED) on certain low-sugar sports drinks in the FY2026-27 budget.

The government approved the change through an amendment to the Finance Bill 2026. The exemption also covers mineral water, aerated water, hydration drinks, and electrolyte beverages containing artificial sweeteners or sugar not exceeding 5 grams per 100 milliliters.

Sources said Gatorade and Revive are sports drink brands owned by PepsiCo, and have now been excluded from the 20 percent FED. Legally, FED applies to sugary drinks. However, these products contain very low levels of sugar or artificial sweeteners along with electrolytes.

The tax department had been consistently demanding FED on these products, while the companies maintained that they should not be subject to the levy.

The exemption has been introduced through amendments to the Federal Excise Schedule under the Federal Excise Act via the Finance Bill 2026. Previously, all mineral water, aerated water, hydration drinks, and electrolyte beverages were subject to the 20 percent FED, regardless of their sugar or artificial sweetener content.

According to the amendment, the Minister for Finance and Revenue moved that, in Clause 6, Sub Clause (14), Paragraph (1), Sub Paragraph (e) of the Finance Bill 2026, the following be substituted:

“Excluding mineral water, aerated water, hydration drinks, or electrolyte beverages specifically formulated to support hydration and electrolyte replenishment, containing artificial sweeteners or sugar, or both, not exceeding 5g per 100 ml.”

It is pertinent to note that the US Embassy in Islamabad had written to the federal finance minister that tax disputes were creating serious challenges for multinational beverage companies operating in Pakistan.

The embassy urged the Ministry of Finance to resolve customs classification disputes, reduce taxes, and address FED issues affecting the beverage sector to support PepsiCo Pakistan’s manufacturing operations and future foreign direct investment (FDI).