ISLAMABAD:

The PML-N-led coalition government has dropped a price bomb of over Rs250 billion on milk consumers by proposing an 18% general sales tax (GST) on every litre of packaged milk being sold in the country.

Interestingly, the Shehbaz Sharif government has targeted a segment related to people’s nutrition, disregarding the sad fact that Pakistan is already facing a very high stunting rate of 40% in children.

As packaged milk comprises a very small portion of the total milk consumed in Pakistan, the government will reap the benefit of only Rs75 billion, while the remaining Rs250 billion will go into the pockets of milkmen.

Federal Board of Revenue (FBR) Chairman Malik Amjad Zubair Tiwana said that the 18% GST will yield revenue of Rs75 billion in the next fiscal year. This amount is equal to what the government has allocated in the budget to fund parliamentarians’ schemes.

After the imposition of the sales tax, the price of packaged milk might surge by Rs50-70 per litre, said the Pakistan Dairy Association (PDA), the representative body of branded milk producers, on Sunday.

But the 18% GST will also allow milkmen to increase their prices by at least Rs30 per litre. Thus, the move will force consumers to pay an extra Rs250 billion to milk producers, both of packaged milk and loose milk sold by milkmen.

The PDA estimates the share of the formal sector at only 8% of the total milk sold in Pakistan. The new taxation will push branded milk prices to at least Rs340 per litre from July 1.

This may also force consumers to shift to loose milk as even after a further increase in loose milk prices, it will still be Rs100 per litre cheaper than packaged milk.

Minister for Finance Muhammad Aurangzeb said on Thursday that Pakistan’s middle and upper-middle-income groups drink packaged milk and can afford to pay 18% GST.

A day after the post-budget press conference, the National Electric Power Regulatory Authority (Nepra) announced a Rs5.72 per unit increase in electricity prices, giving a shock of Rs570 billion to households.

The government of Prime Minister Shehbaz Sharif has also taxed the fodder of animals and poultry feed at the rate of 18% in the budget. This will also result in a hike in meat, milk, and chicken prices from July.

The finance minister had vowed to tax “holy cows” in the budget. But he has ended up taxing the input and the outputs of actual cows and buffaloes.

The only sacred cow he taxed in the budget—exporters—is now putting extreme pressure on him to withdraw the income tax and reintroduce fixed income tax but at a slightly higher rate.

The PDA said the 18% GST is a potential disaster and is lethal to public
health, farmers’ livelihoods, the formalization of the loose milk supply chain, investment in the sector, and food inflation control.

The association said that milk is the most nutritious part of the human diet, and its consumption is key to improving nutritional outcomes and tackling malnutrition.

“But the irony of the fact is that malnutrition is very high with stunting at 40%, wasting at 18%, and underweight at 29% with severe nutrient deficiencies and serious issues for Pakistan, despite being one of the highest milk-consuming nations,” said the association.

It added that recent scientific studies from top academic institutions and food authorities substantiate the fact that the overwhelming proportion of loose milk is non-compliant due to adulteration and contamination and almost half of it is unsafe and unfit for human consumption.

More than 90% of milk in the world is consumed as packaged milk, while in Pakistan, it is the opposite, as over 90% of milk consumers use loose milk.

The PDA said that the formal milk supply chain improves farmers’ livelihoods through increased productivity and guaranteed pick-up; helps the economy through investment and employment generation; helps consumers through access to safe and nourishing milk, and benefits the government through taxation and sector formalization.

The dairy industry supports taxation and considers it key to the development of the country, but it also requests fair play, especially when loose milk is untaxed.

The PDA said the best way to tax packaged milk is through income tax, while the imposition of GST will put the industry at an undue disadvantage against untaxed loose milk.

The PDA feared that the proposed taxation may cause a 75% volume decline, drain profitability, and deprive farmers of Rs23 billion in the shape of less procurement due to a fall in demand.

It said the imposition of GST will take extra money out of consumers’ pockets, the majority of whom will switch to untaxed potentially unsafe options, draining the profitability of companies and income tax for the government.

On the other hand, the removal of sales tax will promote consistent growth of the formal sector with ever-increasing income tax revenues for the government, it added.