Dairy industry offers price cut by Rs50 if tax reduced

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ISLAMABAD:

Pakistan Dairy Association has offered a reduction of Rs50 per litre in milk prices, if sales tax rate is revised downwards from 18% to 5% while approving the federal budget for fiscal year 2025-26.

The government's refusal to cut sales tax on packaged dairy milk in the budget has caused dismay among members of the dairy association, which has cautioned the government that its revenue collection and industry exports may go down. Tax collection on packaged dairy milk was Rs13 billion in 2023, which went significantly higher to Rs44 billion in 2024.

"This is for the first time that tax hike may actually lead to a drop in tax receipts," remarked Pakistan Dairy Association Chairman Usman Zaheer, along with representatives from different dairy companies, at a press conference.

He added that they had started exporting milk to the United States and Middle Eastern nations while new markets in Central Asia were also being explored. Exports of milk amounted to $15 million in 2023, which jumped up to $35 million in 2024. "We will not be able to achieve our export target of $70 million due to higher taxes," they lamented, adding that the government had agreed to reduce taxes in the budget but their proposals were not adopted. They had requested the government to slash general sales tax on dairy items (liquid and powder) from the existing 18% to 5%.

The dairy association added that since the imposition of the tax in July 2024, sales volume had dropped 20% and it would continue to decline further. Reduction in sales tax to 5% from July 2025 could help volumes grow by 20%. Similarly, government revenue will rise 22% year-on-year.

"The move will renew investments in farms, milk processing and exports. Lower taxes will also lead to contraction in the undocumented economy by limiting the consumption of loose milk," they stated, adding that milk prices would fall by Rs50 per litre.