LAHORE: The Pakistan Dairy Association Executive Committee in a recent meeting voiced its concern over the possible decision of the government to remove “Zero Rating” for the dairy sector.

The new tax policy regime will, if implemented, increase the costs for the dairy processing industry by 8% and increase net price of packaged milk by Rs. 8 per litre.

This is because the input taxes paid at the procurement stage will not remain claimable anymore, thus increasing costs accordingly. This increase in costs, when passed on to the consumer, will result in food inflation and simultaneously, an estimated, over 20% decrease in the sale of packaged milk, hurting the growth of the economy. Subsequently, consumers will switch to purchase cheaper unhygienic/adulterated unprocessed raw milk while its sale will remain undocumented and untaxed bringing no benefit to the economy at large. Simultaneously, revenues of the government coming from the processed dairy industry will also fall substantially. 600,000 farmers engaged in the dairy value chain across the country will have their livelihoods negatively impacted and will notice a decrease in demand for the milk they produce.

These processing companies have set up a large network of milk collection centers across the region, whereby easy access is provided to the small dairy farmers (Doodhi) so that they can sell the milk directly to the companies rather than the need of middlemen who takes all the profit out of it.

By eliminating the Zero Rating on packaged milk and dairy products, millions of small farmers will see their livelihoods decline as large players will enter the market to generate maximum profits out of this situation of the expense of small farmers. Related industries for breeding, feeding and milking equipment will also shrink.

The shelf life of milk is only 4-6 hours. Unless it is processed, it will spoil. Therefore, processing and packaging is a requirement of the product to increase its shelf life. In Pakistan, where refrigeration is not available in most homes, ultra-high treated (UHT)/packaged milk are required to transport it long distance (especially to the northern regions of Pakistan).

The demand came to the Federal Bureau of Revenue chairman in the recent meeting held in Islamabad to continue with the Zero Rating regime (presently SRO 670(I)/2013) as part of the Finance Act (included in the 5th schedule) since it is a necessary policy decision to sustain continuous growth of the dairy sector, enhance rural livelihoods and ensure food security for all Pakistanis. —PR