VAT to hamper growth of dairy industry

Published: May 5, 2010

KARACHI: The Pakistan Dairy Association (PDA) has requested the government not to impose value added tax (VAT) on dairy products and milk, fearing this will retard growth of the packaged dairy industry.

In an advertisement on Tuesday, the PDA appealed to Prime Minister Yousaf Raza Gilani, Federal Board of Revenue Chairman Sohail Ahmed and Finance Adviser Abdul Hafeez Sheikh to look into the problems of the packaged milk industry which would arise after the imposition of VAT on dairy products. Muzammil Aslam, economist at JS Global Capital Limited, said that the dairy industry is not the only industry where the government will face difficulties in implementing VAT.

“The government will face problems in imposing VAT especially in the food sector because this area has been mostly unregulated,” he said. Aslam pointed out that the packaged milk industry is exempted from sales tax and after implementing 15 per cent VAT, prices of dairy products will sharply increase. For instance, a packaged milk of Rs60 per kg available in the local market will cost Rs69 per kg after the levy of 15 per cent VAT. “This will certainly put packaged milk out of competition with the informal loose milk,” he explained.

The PDA advertisement says that the packaged dairy sector has only a three per cent share in the market while loose milk sellers have a 97 per cent share. It says that the formal industry will not survive and ultimately Pakistan will have to import packaged dairy products. Aslam said that instead of levying 15 per cent VAT on food items, it is feasible for the government to reduce the rate to three to five per cent at the beginning. Otherwise, like the packaged milk industry, more industries will come up with appeals against VAT on the grounds of a sharp increase in food prices.

Since the loose milk industry is out of the tax net, the packaged sector will completely lose the market owing to a sharp increase in prices, Aslam added. However, he rejected the impression given by the dairy industry that Pakistan will be a milk-starved country in coming years. “Loose milk producers and dealers are now using chillers to store milk, and looking at this change, one can expect that the country will be able to reduce milk wastage. But yes, a lack of milk storage capacity is a big problem,” he said.

More in Business