By Dr Ayesha Waqar
Almost a decade ago, sipping a piping hot mug of cappuccino in Pakistan was a luxury reserved for upscale hotels or affluent travellers in airport lounges. Today, urban centers are bustling with coffee shops at every glance where students pore over textbooks, freelancers indulge in tapping away on their laptops, and friends reunite to bond.
Coffee has proven itself to be an intrinsic fabric, that has weaved its way into Pakistan’s urban identity, symbolizing modernity, amicability, and social connectivity. However, beneath this appealing veneer lies a paradox: as demand soars, prices remain high due to a labyrinthine tax regime.
Taxation vs. Tradition
Pakistan currently imposes import duties ranging between 42% and 53% on finished coffee products, while bulk raw instant coffee, which is essential for many cafés and at-home preparations, is taxed at 28%, including a 15% regulatory duty (RD) and 2% additional customs duty (ACD). In stark contrast, tea, the nation’s beloved staple, enjoys a mere tax of 13%. This disparity highlights a vivid policy disconnect: one beverage is coddled in tradition, and values, while the other is penalized as a foreign indulgence.
While the government defends its exorbitant tax levy on coffee as a mechanism to protect local industries, and boost competition, critics argue that this strategy is flawed. “There is no domestic industry to protect, since Pakistan does not grow coffee,” argues Ayesha Malik, a freelancer in Karachi. “Instead they stifle entrepreneurship, encourage smuggling, and cut down on innovation by punishing consumers.”
The Trickle-Down Effect on Businesses
According to Statista, Pakistan’s coffee market is projected to generate $29.26 million in revenue in 2025, with $11.78 million coming from at-home consumption and $17.48 million from cafés and restaurants. Moreover, the industry is expected to grow annually by 7.2% between through 2029; yet, these figures do not reveal the strain on businesses. “Our profit margins vanish before we know it” remarks Ali Tahir, owner of an Islamabad-based coffee shop.
“If I import 100kg of coffee beans, nearly half of my cost is absorbed by taxes, which has led us to making difficult decisions such as laying off staff, and halting expansions.” Similar stories are voiced by several other coffee shop and café owners, who have resorted to compromising on the quality of coffee beans, or raising product prices, alienating budget-conscious customers.
For Pakistan’s burgeoning middle class, coffee is no longer a splurge, but a daily, sacrosanct rituals. However, with rising costs, consumers are making difficult choices, and reducing their consumption to “once a week” admits university student Sarah Ahmed. This divergence of coffee from affordability to being rebranded as a luxury items reflects a deeper problem: a broader fiscal crisis. Pakistan’s indirect taxes account for nearly 60% of its federal revenue, and the GST tax hike to 18% has further squeezed households’ ability to consumer coffee, as inflation has compounded, and the rupee has depreciated.
A Glance at Regional Wisdom for a Fairer Future
Amid dominating global coffee prices, neighbouring economies such as Vietnam offer an eye-opening roadmap. Once a minor play, Vietnam now influences global coffee exports by slashing tariffs, subsidizing farmers, and investing in processing infrastructure. Albeit Pakistan still lacks coffee farms, it can leverage niches in roasting, and branding if it chooses to.
While Pakistan cannot cultivate its own coffee, it does have the potential to extract economic gold from the coffee bean by utilizing value-added processes. Roasting, grinding, and packaging imported coffee beans locally can result in job creation activities, spur innovation, and cut costs. Moreover, such value addition can also help formalize the informal sector by allowing small businesses to purchase coffee source beans legally, thereby curbing smuggling.
Simultaneously, the government can continue gaining revenue via GST on localized coffee production, and income taxes for new enterprises. By incentivizing ventures such as the procurement of coffee roasting machinery, and partnerships with agricultural institutes via tax rebates, Pakistan can forge its self-sustaining ecosystem, where coffee can be integrated into its export industry to bring millions in revenue, which can also substantially ease its import bill.
Coffee shops have become the hubs for Pakistan’s youth; especially those individuals craving inclusive spaces. Therefore, taxing them into oblivion is not the solution. The underlying objective should be to recalibrate policies in efforts to harness the coffee sector as a catalyst for economic growth.
For now, the aroma of progress in channelling the power of the coffee sector is ironically close, yet afar. The taste? Still bitter.
