Govt withdraws sales tax increase on dairy products

June 19, 2021 (MLN):  After attracting indignation from livestock farmers, bodies representing the livestock sector, and food experts, the government have decided to withdraw the increase in general sales tax (GST) on dairy products and assign zero-rating to the sector, media reports claimed on Saturday.

The government has also changed the dairy sector’s status to zero-rating on persistent demand from the livestock farmers.

“With inflation a threat to growth, we welcome government’s decision to zero-rate milk and reduce GST on other dairy items,” the Pakistan Business Council said while lauding the announcement. “[It] shows prime minister, finance minister, Advisor Commerce and the Federal Board of Revenue’s desire to provide affordable nutrition, formalize and develop this [dairy] sector.”

The government had increased sales tax on dairy products from 10% to 17% in the FY2021-22 budget in view of raking in additional revenue. However, the move was widely criticized by all stakeholders in the dairy product value chain warning the move could cause inflation in the coming months.

Finance Minister Shaukat Tareen’s announcement shocked dairy producers who said the move would be counterproductive and would lead to a reduction in dairy consumption in the already malnourished country.

Analysts had also warned that the increase in ST on dairy products will eventually result in an increase in National CPI over the upcoming months as dairy and related products account for nearly 10% in the food group index of CPI.

Before the budget, stakeholders were urging the government to assign zero-rating to the dairy sector in order to ensure that the general public’s nutritional needs were filled without making them costlier.

It is estimated that the government will bear a revenue loss of Rs5 billion from reduction in GST.

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Posted on: 2021-06-19T18:04:00+05:00