THE dairy sector is facing the double whammy of a sales tax on its products and a simultaneous reduction in the import duty on milk powder which, the industry says, will affect its sales and growth.

Although the zero rating regime, despite fears of withdrawal, remains unchanged and will continue on milk, infant milk and tea whitener, the federal budget has proposed to impose 10pc sales tax on various dairy products sold in retail packing. The zero rating regime is considered a necessary policy measure to support growth of the dairy sector.

The new tax policy has proved to be disappointing for the sector. Industry sources say, instead of giving any relief to the dairy sector, the federal budget has increased the inputs costs by increasing import duty and imposing sales tax on soybean meal and imposing 5pc sales tax on cattle feed. Calf Milk Replacer and Premixes for cattle feed will be subjected to 5pc sales tax while import duty has been increased from 5pc to 10c.

The cost of processing milk will go up. Many consumers may now revert to loose (unpackaged) milk which still remains completely out of tax net.

Simultaneously, dairy owners argue that the revenue of the government coming from the processed dairy industry will also fall substantially. Nearly 600,000 farmers in Punjab and Sindh, who are engaged with the dairy value chain across the country, will find their livelihoods affected when they will notice a decrease in demand for the milk they produce.

What the industry finds difficult to understand is that despite growing demand of local packed milk and other dairy items such as yogurt, the federal government did not find it necessary to consider discouraging import of skimmed milk powder and whey powder. As against this, it lowered the duty by 5pc, bringing it down to 15pc from 20pc for Saarc countries and to 20pc from 25pc for the import from rest of the world. An undesirable outcome of these developments, it is believed, will be reduction in foreign and local investment in dairy farms and the dairy processing that amounted to $700m over the last five years.

In addition to that, the expected rise in sale of imported dry milk can have serious implications for small dairy farmers who number about 35-40m people.

However, so far annual demand for milk has been increasing by 10-20pc whereas the milk production is growing only by 4pc per annum, according to Sindh Board of Investment. It shows how great demand for milk consumption is in the country. What is needed is an attractive package of facilities and concessions to promote and expand the dairy sector to satisfy the growing domestic demand for milk and its products.

Pakistan is one of the largest milk producing country in the world, but still imports 40,000 tonnes of dry milk annually, which is equal to 320,000 tonnes of fresh liquid milk. Pakistan’s import of skimmed milk powder during last five years from India weighed over 21.48m kg, valuing more than $72.3m.

Pakistan, while taking note of the successes which Turkey has made in the last 10 years, wants to emulate its example. The government of Punjab, in particular, is keen to develop a similar model under which the government provides necessary support and assistance in the form of subsidies and enabling taxation regime to the dairy sector. to invest.

Punjab has studied in detail how India and Turkey protected their dairy farmers from imported dry milk by imposing heavy duties. India has imposed 68pc duty on dry milk import whereas Turkey has slapped 180pc duty to protect dairy farmers.

Reports say that in the recent years as the import of milk powder increased, some local milk sellers have started manufacturing recipe UHT products by using skimmed milk powder, whey powder and other ingredients. Confectionary and sweetmeat shops have also shifted to cheaper and low quality milk powder replacing locally produced fresh milk.

• Published in Dawn, Economic & Business, June 22nd, 2015*

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