The Pakistani government has assured a review of the 18% sales tax on packaged milk, following concerns from the Pakistan Dairy Association (PDA) and industry stakeholders. With Pakistan imposing the highest tax rate on branded milk globally, the decision has led to skyrocketing prices, declining sales, and a shift to the informal sector, affecting millions of consumers and farmers alike.
Financial Burden on Consumers and Industry
The 18% General Sales Tax (GST), imposed in the recent budget, was aimed at generating Rs50 billion in additional revenue. However, this decision has had severe repercussions:
- Packaged milk prices surged by Rs70 per kg, reaching Rs350 per litre.
- Sales plummeted by 20%, with a further 14% decline anticipated.
- The formal dairy sector lost 20% of its milk supply to the unregulated loose milk market.
- Over 500 milk collection centres were shut down, displacing thousands of farmers.
In a country where 64% of packaged milk consumers earn under Rs50,000 per month, such a drastic price increase has rendered packaged milk unaffordable for the majority.
Comparative Global Taxation on Milk
The Pakistan Dairy Association (PDA) has highlighted that no developed nation imposes such a high tax on packaged milk. A comparison of sales tax rates on milk in different countries further reveals the anomaly:
- United States, Canada, Australia, Bangladesh, UAE – 0% Tax
- India – 0% Tax
- Sri Lanka – 8% Tax
- United Kingdom – 9% Tax
- Germany – 7% Tax
The PDA argues that Pakistan’s 18% tax is an outlier, even when compared to developed economies with significantly higher per capita incomes.
Economic and Health Implications of the Tax Hike
Malnutrition and Health Crisis
Pakistan already faces a severe malnutrition crisis, with 40% of children under five suffering from stunted growth and 54% of women and girls suffering from anemia. The imposition of an 18% sales tax on milk further worsens the nutritional gap.
Impact on the Formal Dairy Sector
The dairy industry is struggling due to reduced demand and higher operational costs:
- Capacity utilization dropped below 50%, with some processors operating at less than 30%.
- 20% job losses have been reported in the sector.
- Small-scale dairy businesses are on the verge of closure.
- Advertising and marketing budgets have been slashed, reducing consumer engagement.
Rise of the Informal Market
With the formal packaged milk sector declining, the loose milk market is thriving. The informal sector gained Rs1.3 trillion annually, as loose milk prices rose by Rs30-40 per litre. However, studies show that 45% of loose milk samples collected across Pakistan are unsafe for consumption.
Government’s Response and Industry’s Appeal
During a meeting with the Pakistan Dairy Association, Finance Minister Muhammad Aurangzeb acknowledged the industry’s concerns and assured a review of the taxation policy. The PDA urged the government to reduce the tax to 5%, aligning with international practices and ensuring affordability for consumers.
Future Outlook – Will the Government Reduce the Tax?
With the dairy sector facing unprecedented challenges, the government must act swiftly to prevent further damage. A reduction in the sales tax on packaged milk will:
- Ensure affordable milk prices for consumers.
- Revive the formal dairy sector, restoring job losses.
- Encourage safe milk consumption, reducing dependency on loose milk.
- Stabilize revenue collection, as increased sales could compensate for lower tax rates.
The government’s final decision on this matter will determine the future of Pakistan’s dairy industry and millions of consumers who rely on packaged milk for daily nutrition.
