CAT Upholds CCP Price-Fixing Ruling Against Dairy Associations

The Competition Appellate Tribunal (CAT) has upheld the Competition Commission of Pakistan (CCP)’s findings against three Karachi-based dairy farmer associations for price-fixing, a ruling with significant tax implications for implicated entities. Our tax law firm advises clients to navigate the compliance fallout and mitigate audit risks stemming from this verdict.

The CCP investigation revealed that the associations, including the Dairy and Cattle Farmers Association (DCFA) and Karachi Dairy Farmers Association (KDFA), colluded to artificially inflate milk prices across the dairy supply chain—from farm to wholesale and retail—using threats, coercion, and hoarding in ice factories to create shortages, later selling at inflated rates in rural Sindh. Shakir Umer Gujjar, DCFA President, was recorded announcing a price hike, a practice enforced citywide, per CCP evidence. While CAT affirmed the anti-competitive practices, it reduced penalties for Gujjar and Haji Sikandar Nagori (KDFA) from Rs1 million and Rs500,000 to Rs150,000 each, granting leniency but requiring written undertakings against future price-fixing.

From a tax law perspective, this ruling raises red flags for dairy businesses. Inflated revenues from price-fixing may lead to under-reported taxable income, triggering Federal Board of Revenue (FBR) audits under Section 177 of the Income Tax Ordinance, potentially resulting in retroactive tax assessments and penalties (e.g., 5% default surcharge or Rs50,000 per instance, per standard FBR norms). Sales tax compliance is also at risk, as manipulated pricing could affect input tax credits under Section 8B, requiring reconciliation with VAT records. The CCP’s warning against sharing commercially sensitive information underscores the need for compliance with anti-trust regulations, as violations may lead to FBR scrutiny on collusive profits.

Critically, the narrative of “anti-competitive enforcement” may downplay systemic issues—web sources like Dawn highlight recurring price-fixing in Pakistan’s dairy sector, often tied to weak regulatory oversight, suggesting clients in this industry face persistent compliance risks. The leniency granted may also encourage future violations if not paired with stricter monitoring.

Our firm advises clients to review pricing practices, ensure accurate tax reporting, and prepare for FBR audits, safeguarding against tax and regulatory risks in this volatile sector.