The Government has removed the 20 percent Federal Excise Duty (FED) on certain low-sugar sports and hydration drinks under the FY2026-27 budget. The decision was approved through amendments to the Finance Bill 2026. Officials said the move is aimed at updating the tax treatment of beverages with very low sugar content.
According to the revised rules, the exemption applies to mineral water, aerated water, hydration drinks, and electrolyte beverages. These products must contain artificial sweeteners, sugar, or both, with total sugar not exceeding 5 grams per 100 milliliters.
The Government introduced the exemption by amending the Federal Excise Schedule under the Federal Excise Act. Previously, all such beverages were subject to a 20 percent FED, regardless of their sugar content or the use of artificial sweeteners.
Sources said the exemption covers popular sports drink brands such as Gatorade and Revive, which are owned by PepsiCo. These products contain electrolytes and very low amounts of sugar. Because of their formulation, the companies argued that they should not be treated as regular sugary drinks.
For several years, tax authorities maintained that these beverages should be subject to the federal excise duty. Beverage companies, however, disagreed with this interpretation. They argued that products with minimal sugar and added electrolytes should not fall under the same tax category as high-sugar soft drinks.
The amendment changes the wording of the Finance Bill 2026. It specifically excludes hydration drinks and electrolyte beverages that are formulated to support hydration and electrolyte replacement. To qualify for the exemption, the drinks must contain no more than 5 grams of sugar per 100 milliliters, whether from sugar, artificial sweeteners, or a combination of both.
The Government believes the revised policy provides greater clarity for manufacturers and tax authorities. It also creates a clear distinction between beverages with high sugar content and products designed for hydration and sports performance.
The issue had also attracted international attention. Reports said the US Embassy in Islamabad raised concerns with Pakistan’s Ministry of Finance regarding tax disputes affecting multinational beverage companies. The embassy stated that ongoing customs classification disagreements and FED-related issues were creating operational challenges for international investors.
The embassy also encouraged Pakistani authorities to resolve tax disputes and improve the investment environment. It said clearer tax policies could support PepsiCo Pakistan’s manufacturing operations and encourage future foreign direct investment (FDI) in the country.
The latest amendment reflects the Government‘s effort to revise tax rules based on product composition. It also aims to reduce uncertainty for beverage manufacturers while maintaining tax policies for drinks with higher sugar levels.
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Officials expect the updated rules to simplify tax administration and provide clearer guidance for companies producing hydration and electrolyte beverages. The amendment has now become part of the Finance Bill 2026 and will apply according to the revised Federal Excise Schedule.
