Crazy Pakistan tax

I’ve argued for better sense in taxation on numerous occasions and now find myself perplexed by a device I’ve just learned about in Pakistan.

It’s a capacity tax and it’s being applied to aerated water drinks at a rate of 26%. So, instead of being taxed on actual sales, companies are liable on their theoretical capacity.

No doubt, the relative merits have been extensively debated and I dare say that a capacity tax will reduce any industry overcapacity. But I suspect it will also more severely reduce investment and innovation as well as competition.

It seems crazy to me, but perhaps there are similar examples elsewhere and I wonder what its supporters say.