LAHORE: The federal budget 2015-16, being announced on Friday (today), has recommended withdrawing zero rating facility for dairy products including packaged milk and the government would slapping 10 per cent sales tax on these items, which will cause hike in rate of packaged milk by Rs10 per kg.
According to finance bill 2015-16 being presented in National Assembly today, the government has imposed duty of 10 per cent on packed milk, which will indirectly affect the demand of lose milk, leading to hike in its price by at least Rs5 per kg.
“The imposition of 10% sales tax will have a negative impact on the dairy sector. The new tax policy regime will increase costs for the milk and dairy processing industry and increase net price of packaged milk,” claimed dairy industry officials.
The input taxes paid at the procurement stage will be un-claimable, increasing costs considerably. If this cost is passed on to the consumer, a rise in inflation will be observed and simultaneously result in an over 20% decrease in the sale of packaged milk. Consumers will therefore, be pushed to consume lose milk, which still remains completely out of tax net. Simultaneously, the revenues of the government coming from the processed dairy industry will also fall substantially. 600,000 farmers engaged in the dairy value chain across the country will have their livelihoods negatively impacted and will notice a decrease in demand for the milk they produce. Most of these farmers are located in Punjab and Sindh.
Dairy Association (PDA) chairman Faisal Malik said that Pakistan is the world’s fourth largest milk producer, with an annual output of approximately 41 billion liters. Milk is an essential food for human beings; it provides calcium, key vitamins and iron for the human body. It is the first food that a child nourishes on. Milk and dairy products account for 22% of kitchen expenditure (compared to wheat, which is 12%).
Milk products also have 7.4% weightage in the Consumer Price Index, while wheat is 4.2%. Overall, the dairy sector constitutes 11% to Pakistan’s GDP.
Faisal Malik said that in most developing and developed countries (such as India, UK, USA, Canada, etc), milk is subsidized because it is considered an essential food item. He said that only 4% of the formal sector pays taxes (approximately PKR 3 billion), whereas 96% of the country’s milk industry is still represented by unprocessed milk producers who do not pay any tax.
–SALMAN ABDUHU

According to him, the National Dairy Plan of India envisages an increase in the share of the documented/organized dairy sector to 65% compared to its current share of 30% by 2020. The processed dairy sector in Turkey has also exhibited rapid growth, from 30% market penetration in 2002, to approximately 70% in 2012. This was not possible without government support, he quoted.
In the case of milk, the shelf life is only 4-6 hours. Unless it is processed, it will spoil. Therefore, processing and packaging is a requirement of the product to increase its shelf life. In Pakistan, where refrigeration is not available in most homes, ultra-high treated (UHT)/packaged milk are required to transport it long distance (especially to the northern regions of Pakistan).
More than 70 percent of UHT milk is sold in smaller packs (including quarter litre), which is purchased by the poor for their daily consumption. The situation is similar for other dairy products including yogurt, tea whiteners, cheese, etc.
Faisal Malik said that the price of one liter of unprocessed milk will also increase by Rs 5, resulting in a directly proportional increase in the price of processed/packaged milk. This inflation and associated multiplier effect will adversely impact the entire value chain, beginning with the livelihoods of farmers and ending with the consumer.
Consequently, foreign and local investment in dairy farms and the dairy processing sector will suffer– which amounted to USD 700 million over the last five years. The “white revolution” which the government proudly supported in years past will no longer benefit the rural farmer and be able to offer an affordable and quality milk proposition for consumers. Pakistani authorities are taking note of the successes which Turkey enjoyed in the last 10 years, and are looking to emulate the same in Pakistan. In particular, the Government of Punjab is adopting a similar model to Turkey, whereby the government provides necessary support and assistance in the form of subsidies and enabling taxation regime to the dairy sector – including associated sub-sectors such as breeding, feeding, quality testing, processing and others.
PDA Chairman said that by eliminating Zero Rating on packaged milk and dairy products, millions of farmers will see their livelihoods decline. Related industries for breeding, feeding and milking equipment will also shrink. Direct investment in the dairy processing sector will decrease and lower the quality of milk for consumers as well as production capacity, discourage corporate dairy farming, and make value chains less efficient while simultaneously increasing rural poverty and decreasing GDP.