Mini-budget: Infants caught by govt’s tax claws

Industry executives oppose measure to include infant milk, nutritional supplements for pregnant mothers

KARACHI:

The government fired its latest measure to increase tax collection to meet an ambitious target for fiscal year 2016, saying the mini-budget is targeted at those consuming “luxury goods”.

What the government was unable to do was spare infants from its expanding tax claws.



Besides cheese, mangoes and cars, regulatory duty has also been enhanced on import of infant milk products, which are considered essential items for babies who are not fed by their mothers.

More than half the infant milk demand is met by imports, which are already subject to between 29% and 30% taxes, including regulatory duty, federal excise duty and withholding tax.

Now duty on infant milk has been increased by another one per cent. However, a pressing concern for industry executives is the 5% increase in duty on nutritional supplements for pregnant mothers.

“I seriously think this is a mistake,” said S M Uzair, CEO of Global Brand Marketing, which sells Meiji products in Pakistan. “It’s a case of oversight because infant milk is no luxury from any angle whatsoever.”



Barring income tax that gradually increased over the years, import duty has remained unchanged on infant milk for the last 10 years.

The fact that the government does not levy any sales tax on infant milk products has made the recent increase in regulatory duties even more of “a matter of omission”.

Manzoor Ahmed, the CEO of Nutrico, which markets Morinaga products, says he fails to understand the rationale behind the duty.

“You know very well that sales tax is applicable on almost all products. Infant milk was among that small category of things, which had been exempted from sales tax. Obviously this means that successive governments have considered it as an essential product like medicines,” he said.



Both executives believe the additional 1% duty on infant milk would not impact sales. But it is rather a matter of principle on which they vehemently oppose the tax.

However, increase in the regulatory duty on nutritional or lactating milk for pregnant women has become a matter of concern.

“The regulatory duty on such products has been increased to 15% from the previous 10%, putting the products in the category of cosmetics like lipsticks,” says Uzair of Meiji.

The two dominant players in the industry bitterly opposed the notion that only ‘rich’ mothers would want to use such supplements. “Some of the products are used by pregnant mothers who are malnourished,” says Uzair. “Others are for premature and underweight babies. It’s sort of an imperative.



“It’s a misconception that this is a kind of a luxury for the rich. In Pakistan, 95% of the babies are still breast-fed. Our products are for those 5% cases where there is some problem,” Manzoor concurred.

The infant milk market is divided between Morinaga, Meiji and Nestle - which makes the products in Pakistan.  Morinaga and Meiji are imported from Japan and sell at a premium.

Size of the market in terms of sales revenue and quantity is around Rs25 billion and 25,000 tons a year, respectively. Roughly around 10,000 tons of infant milk is imported.

However, the Pakistan Bureau of Statistics (PBS) combines infant milk with milk cream when reporting import numbers. As per the PBS, import of milk cream and milk food for infants in fiscal 2014-15 was 77,000 tons. It cost $289 million.

Industry officials say that latest regulatory duty would not yield government more than Rs120 million, making it a miniscule part of the Rs40 billion mini budget.

Published in The Express Tribune, December 3^rd,  2015.

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