After FrieslandCampina meeting: Govt hints at conceding some ground

Dutch company reps meet finance minister, were concerned over withdrawal of zero-rated tax regime for dairy sector

ISLAMABAD: The government on Saturday hinted at conceding some ground to foreign multinational companies amid an ongoing row over a change in the sales tax regime of the dairy sector. However, it refused to withdraw the proposed 25% additional regulatory duty on imported milk powder.

Finance Minister Ishaq Dar met with a delegation of FrieslandCampina - the Netherlands-based leading global dairy company - to find a way out of the dispute arising out of a change in the sector’s tax structure. The purpose of the meeting was to find a ‘win-win’ situation for both parties, said an official of the Finance Ministry.

It was the second meeting in less than 24 hours. Earlier, Ambassador of Switzerland Marc George and Embassy of Netherlands Charge d’affaires Mrs Renate Pors jointly met with Dar to convey their concerns about the proposed changes in dairy sector’s tax structure.

In the budget for 2016-17, the government has announced taxing the inputs of the dairy sector at 17% standard rate by withdrawing the zero-rating regime with effect from July 1. It has also proposed to slap additional 25% regulatory duty on imported powdered milk, which will increase overall duty on the product to 45%.

Sources said that Finance Minister indicated that he was ready to review the decision of charging 17% sales tax on the dairy sector’s inputs. They said the alternate could be that the government would charge 5% sales tax on the retail price of milk.

Under this arrangement, the consumer will pay the tax at the reduced rate, but the milk processing companies will not take any hit by change in the tax structure. However, the impact on consumer will be relatively less than the regime proposed in the budget.

Global Chief Financial Officer (CFO) of FrieslandCampina, Hein Schumacher, led the delegation. FrieslandCampina is in the process of due diligence to acquire a majority stake in Engro Foods - a subsidiary of the country’s biggest conglomerate, Engro Corp. The estimated cost of this transaction is about $500 million.

The Dutch Charge d’ Affairs on Friday had cautioned the Finance Minister that the company may review its decision of investing in Pakistan.

“FrieslandCampina would be offered maximum possible facilitation in undertaking investment here,” an official hand-out quoted the Finance Minister as saying. Dar further said that government was fully focused on achieving economic growth and foreign investment was a major tool to help achieve this objective.

However, the Finance Minister refused to concede ground on the issue of 25% additional regulatory duty, fearing backlash from the agriculture sector that has a strong presence in parliament. Dar informed the Dutch delegation that majority of the members of the Parliament were from the rural areas and they were seeking increase in regulatory duties on imported powdered milk.

Currently, the government charges 20% custom duty on imported powdered milk. The government has proposed to levy an additional 25% regulatory duty from next month.

Sources said there was thin possibility that the government may reduce the proposed additional regulatory duty by 5% to 20%.

Schumacher informed the Finance Minister that his company had a profound desire to undertake investment in Pakistan because of the attractive business environment. He said there are “positive prospects in Pakistan not just in the dairy and food sector but in other sectors as well”.

Published in The Express Tribune, June 12^th, 2016.

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