‘Taxation policy for the dairy supply chain must be re-aligned’: Advisor to PM

March 7, 2019: Advisor to Prime Minister on Commerce, Industries and Investment, Abdul Razak Dawood in a meeting with delegation of International Finance Corporation, World Bank, discussed policy options to revive the growth of dairy sector in Pakistan.

The delegation informed that despite the huge potential in the dairy sector of Pakistan, only 5% of milk sold in the country is processed and packaged while 95% of the milk consumed is loose milk. The delegation also highlighted issues of taxation and need to pass the pasteurization law which would reduce the health risk from the unprocessed milk sold in the market.

The adviser said that the taxation policy for the dairy supply chain must be re-aligned for government’s broader socio-economic objectives with the nutritional requirements of the population.

He reiterated that the taxes applied to the milk supply chain would be rationalized to incentivize the formal sector to expand milk collection and processing units across the country and bring the dairy farmer into the formal sector.

It was discussed that processed milk, being an essential commodity, remained under the zero rated sales tax regime from 2006 till 2016. However, the incentive was withdrawn in 2016 and sales tax was reapplied.

As the demand of packaged milk is highly elastic and very sensitive to price, the imposition of sales tax led to a decline of domestic market by 30% and the formal processing units registered a drastic 80% decline in profits. This forced manufacturers to cut down costs and close milk collection points across the country and the farmers starting shifting back to the informal market.

The Advisor emphasized over the need to reverse this trend and bring the dairy farmer back into the formal eco-system where the farmer can work in partnership with formal sector companies to improve the health and yield of the livestock.

He also stressed the need to take a whole of government approach to revive the livestock sector, by focusing on reducing the regulatory and taxation burden, improving productivity and supply chain management.