Dairy sector shrinks 20% after GST blow

Express Tribune

2 days ago

At high tax rates, profit margins for sellers decrease, leaving them with options to pass on the burden to consumers, compromise on the quality of products, evade taxes or find cheaper illicit goods. photo: file
The government may have generated a revenue of Rs44 billion after the imposition of 18% General Sales Tax (GST) on dairy products in the last budget. However, this move has also resulted in a 20% drop in the production and sales of these products in Pakistan.
Some key office-bearers of the Pakistan Dairy Association (PDA) on Tuesday told the media that since July 2024, investment of millions of dollars has stalled in the dairy sector due to rising production costs.
Moreover, around 500 milk collection points — set up by dairy companies for purchasing milk from farmers — have also been shut down and 20% of the workforce has lost employment.
PDA Chairman Usman Zaheer, CEO Dr Shehzad Ameen, Noor Aftab and other officials stated that over 100 developed and developing countries, including India, Bangladesh, Afghanistan, the US, and the UK, do not impose taxes on packaged milk. Where taxes are levied, the rate is usually around 5%.
In response to a question, they said that before the 18% GST, the dairy sector was already contributing over Rs13.7 billion in revenue through income and super taxes.
But in 2024, the sudden imposition of GST pushed the total tax revenue — income tax, super tax, and GST — up to Rs44 billion — a significant increase on the surface, but one accompanied by a dangerous decline in dairy product sales and production, which threatens the industry's sustainability.
They warned that the decrease in dairy product sales will eventually reduce Federal Board of Revenue's (FBR) revenue collection and affect employment. They added that if the GST had been reduced, even higher tax revenues could have been achieved.
The PDA admitted that there is a public perception that loose milk is safer than packaged milk but this is not true. In Pakistan 92% of the population uses loose milk, which poses serious health risks, while only 3% to 4% consume packaged milk.
The association emphasized that taxation is a major challenge for this industry. Despite the obstacles, Pakistan's dairy sector has exported $35 million worth of packaged milk in the current fiscal year — double the amount compared to the previous year.
According to the association, 45% of loose milk is unsafe, due to higher risks of bacterial contamination, whereas packaged milk meets international safety standards. The official said Rs1.3 trillion loose milk economy remains undocumented, which needs to be brought under the tax net.
They also noted that Pakistan currently exports packaged milk to the Middle East, Africa, the US, and Central Asian countries, and efforts are underway to expand exports to China.