ISLAMABAD  -  The National Budget 2024-25 originally proposed an 18% sales tax on packaged milk, a measure intended to boost government revenue but with potential widespread impacts on public health, agriculture, and economic stability. However, responding to concerns raised, the Senate of Pakistan has intervened with a recommendation to maintain the zero rating for packaged milk and dairy products. This recommendation, detailed in Annexure C of the Senate’s report on the budget, aims to support the dairy sector in delivering safe and affordable milk to consumers by withdrawing the proposed sales tax amendment from the finance bill 2024-25.

Public Health Concerns: Milk is a cornerstone of the human diet, renowned for its nutritional benefits. Dairy products are nutrient-rich and are excellent sources of high-quality protein, as well as calcium, phosphorous, potassium, iodine, vitamin B2 and B12. The unique combination of constituents of milk and other dairy products contributes to the health effect known as “dairy matrix” and to the prevention of many diet related diseases such as metabolic disorders, osteoporosis, diabetes, hypertension and cardiovascular concerns, all supported by rigorous scientific research across the globe.

Countries with higher milk consumption typically enjoy lower rates of malnutrition and chronic illnesses. However, Pakistan faces significant challenges due to the prevalence of loose milk, contributing to high levels of both malnutrition and chronic diseases. For instance, diabetes prevalence in Pakistan exceeds 30%, well above global averages. Additionally, the country grapples with alarming malnutrition rates: 40% of children suffer from stunting, 18% from wasting, and 29% are underweight. Despite being among the world’s top milk consumers, Pakistan struggles with severe deficiencies in essential nutrients. These stark statistics highlight the urgent necessity for Pakistan to shift towards packaged milk to improve public health outcomes and effectively tackle these pressing health issues.

A significant portion of Pakistan’s milk supply flows through informal channels, commonly referred to as loose milk, which poses grave health risks due to widespread adulteration and contamination. Studies conducted by prominent academic institutions and the Pakistan Food Authority (PFA) consistently highlight that a considerable amount of loose milk is unfit for human consumption.

This perpetuates health problems rather than mitigating them, lack of standardized processing and storage practices in the loose milk sector exacerbates hygiene and safety concerns, reliance on loose milk undermines efforts to ensure consistent nutritional quality and safety standards, making it imperative to reconsider its consumption for the well-being of the people and future generations of Pakistan

The Case for Formalization: The nation boasts a vast dairy herd, with approximately 100 million cows and buffaloes producing 68 billion liters of milk annually. However, more than 90% of this milk enters the market through informal means, undermining efforts to ensure its safety and quality. In 1938, 25% of U.S. illnesses from contaminated food and water were linked to milk consumption, underscoring the need for a formal milk supply chain (packaged milk). Government support and policies worldwide eradicated loose milk, with over 90% of global milk now consumed as packaged adhering to stringent quality standards and ensuring safe consumption emphasizing Pakistan’s need to follow suit.

Promoting a formal milk supply chain not only safeguards public health but also enhances farmer livelihoods by guaranteeing fair prices and steady demand. It stimulates economic growth through increased investment, job creation, and tax revenues. Moreover, formalization aligns with global best practices for food safety and nutrition.

Economic and Social Impact: The proposal to levy an 18% sales tax on packaged milk could prove counterproductive. It risks driving consumers towards cheaper, untaxed loose milk, further marginalizing the formal dairy sector resulting in milk volume declines, this shift would devastate dairy farmers resulting in losses of up to Rs. 30 billion due to reduced market demand. Consumers would be compelled to switch to cheaper, unsafe options, risking health implications with potential price hikes of Rs. 50-70 per liter It also threatens job losses of ~7,500 and jeopardizes government income tax revenue, as the taxed sales may not offset losses in income tax from a shrinking formal sector. The majority of packaged milk sales, accounting for 64% are driven by households earning less than Rs 50,000 per month, motivated by their priority to provide safe and trusted milk for their families. This group would face the greatest impact.

A Call for Reconsideration: Stakeholders across the dairy industry advocate for the removal of the proposed sales tax on packaged milk. Instead, they propose taxing milk through income tax, preserving the viability of the formal sector while encouraging sustained economic growth. Such a move would ensure continued access to safe, nutritious milk for consumers, bolster farmer incomes, and support government revenue through sustainable taxation practices.

Globally, taxation is crucial for steering economies and sectors. Policies in many countries, including Turkey, have shifted from loose to packaged milk to ensure safety and align with international standards. In Punjab, regulations were rightly enacted to enforce minimum pasteurization through the Punjab Food Authority. However, imposing sales tax on packaged milk could drive consumers, especially in the middle class, towards unsafe loose milk options amid high inflation. This shift not only threatens the formal sector but also compromises consumer health and burdens the healthcare system. It could also harm farmers supplying the formal sector and hinder efforts to formalize and attract investment in this critical sector.

In conclusion, while fiscal policies are essential for national development, they must not come at the cost of public health, economic stability, and social welfare. Removing the proposed sales tax on packaged milk will support the formalization of the milk supply chain, safeguard public health, enhance farmers’ livelihoods, and foster investment and employment within the sector which is essential for fostering a resilient dairy sector for Pakistan.