‘Rich man’s milk’ to be taxed more, everyone to suffer

Withdrawal of zero-rating regime for dairy sector expected, price of loose and packaged milk to go up

ISLAMABAD: The government is adamant on making life difficult for the common man, as it has refused to withdraw proposed changes in the tax regime for the dairy sector, which will result in an increase of up to Rs8 per litre in the price of packaged milk.

The government has announced taxing the inputs of the dairy sector at 17% standard rate by withdrawing the zero rating regime.



The government is showing defiance at a time when the Overseas Investors Chamber of Commerce and Industry (OICCI) also raised the issue of negative impact of change in tax regime on dairy sector. In a letter written to Finance Minister on Thursday, the OICCI wrote, “The change will result in a major negative impact for the nascent formal and tax compliant dairy sector.”

Furthermore, the OICCI cautioned the Finance Minister against the proposal to levy an additional 25% regulatory duty on powdered milk and whey powder.

“The companies will not absorb the increase in cost of milk and butter and will pass on the taxation impact to consumers by increasing the prices of milk by Rs6 to Rs8 per litre,” said Waqar Ahmad, head of corporate affairs of Nestle Pakistan, while giving a presentation to the National Assembly Standing Committee on Finance on Thursday.

However, MNA Rana Mohamamd Afzal, Parliamentary Secretary for Finance, said that there was a very strong farming community in parliament that has been protesting against import of powdered milk.



The Rs6-8 per litre increase in packaged milk price will directly benefit the farming community, as the informal sector would be incentivised to raise its prices as well.  “The dairy industry should absorb the impact of change in tax regime and should not increase the prices of milk and its products,” said Finance Minister Ishaq Dar while talking to The Express Tribune.

Incapable of mending its own house, the Federal Board of Revenue (FBR) is now looking to find a new prey in order to meet its budgetary target. Under zero-rating tax regime, about Rs8 billion annual refunds were created under the dairy sector. However, instead of paying these refunds back to the dairy sector, the FBR was showing them as their revenues. After change in tax regime, the refunds would be treated as tax revenue, which will eventually be paid by the consumers.

Pakistan Dairy Association (PDA) - the representative body of the milk processing plants - on Thursday knocked the doors of parliamentary committees of National Assembly and Senate for relief against aggressive tax measures.



The NA committee did listen to the PDA but did not give a decision as to whether it would ask the government to withdraw the proposed change. However, the Senate committee rejected the PDA’s plea, terming the packaged milk “rich man’s milk”.

The government’s insistence on changing the dairy sector tax regime could also threaten over $500 million planned foreign investment by FrieslandCampina, one of the leading global companies.

Stationary

The Senate Standing Committee on Finance on Thursday recommended the government to restore zero-rating regime for the stationary sector. Like the dairy, the government has also proposed charging the inputs of the stationary at standard 17% sales tax, which would push up the prices of stationary.

The representative of local manufacturing of stationary Riazuddin said that the FBR has also proposed customs duty at a rate ranging from 11% to 20% on imported stationary components. 

Published in The Express Tribune, June 10^th, 2016.

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