Government Reviews 18 percent Milk Tax Amid Industry Crisis and Public Outcry

The federal government has promised to reassess the 18% sales tax on packaged milk after concerns raised by the Pakistan Dairy Association (PDA) regarding the negative impact on prices, sales, and the growing shift to unregulated loose milk.

The controversial 18% General Sales Tax (GST), introduced in the latest budget to generate an additional Rs50 billion in revenue, has led to a 20% decline in packaged milk sales since July. An additional 14% drop is anticipated for the remainder of the fiscal year. Packaged milk prices have surged by Rs70 per kilogram, bringing the cost of one litre to Rs350, making it the most expensive basic food item.

Finance Minister Muhammad Aurangzeb reassured PDA representatives on Thursday that the government would revisit the tax. The dairy industry, in a meeting with the minister, called for a tax reduction to 5%, aligning with global standards.

The PDA pointed out Pakistan's dire nutritional issues, citing data that shows 40% of children under five are stunted, while 54% of women and girls are anaemic. Pakistan is ranked 109th on the Global Hunger Index, making affordable milk essential for addressing these concerns. The association further emphasized that 64% of packaged milk consumers have monthly incomes below Rs50,000, which places them below the tax threshold.

The PDA also challenged the finance minister's claim that only wealthier individuals consume packaged milk, arguing that middle- and lower-income families are bearing the brunt of the tax increase. The association also highlighted that Pakistan now has the highest tax on branded milk globally, surpassing countries like the U.S., Canada, Australia, UAE, Bangladesh, and India, where no tax is levied. Countries like Sri Lanka, the UK, and Germany impose relatively low taxes, ranging from 7% to 9%.

The dairy industry also expressed concerns that the anticipated Rs50 billion in tax revenue may not be realized due to declining sales. The formal sector has lost 20% of its milk supply to the unregulated market, forcing the closure of 500 milk collection centers and impacting 35% of dairy farmers, who are now shifting to loose milk at a loss of Rs10-15 per litre.

With reduced capacity utilization, some dairy processors are operating at less than half of their usual capacity, leading to significant job losses and business closures. Smaller dairy companies are facing a financial crisis, and even major players have begun scaling back advertising budgets to mitigate losses.

Recognizing the industry's challenges, the finance minister has promised to review the current sales tax policy, sparking hopes for a possible tax reduction.