The government has proposed increasing the Federal Excise Duty (FED) from 13% to 25% on the distribution of local and imported caffeinated beverages.

The excise duties are mainly consumer spending taxes. Businesses serve as government retainers and pass these taxes on to customers by raising prices proportionately. This will make the caffeinated beverages more costly for consumers.

It means that if you pay Rs250 for a Red Bull, you will now pay Rs272, of which 25 percent will go to the government in the form of taxes.

“Caffeinated drinks are harmful to health, therefore, to reduce its consumption, FED has been increased from 13% to 25%,” Minister of State for Revenue Hammad Azhar said on Friday while revealing the federal budget for 2021.

The government is facing a shortfall in revenue due to lower collection of taxes. It has chosen to tax expenditure in the latest budget as opposed to raising income tax rates. This decision is aimed at discouraging the consumption of caffeinated beverages that are harmful to health, while at the same time helping the government generate revenue.