LAHORE: Industry representatives and public have criticised the government over its plans to impose 18 per cent General Sales Tax (GST) on locally produced infant formula milk and baby food.

They said the heavy taxation would worsen malnutrition among infants and children as parents would be compelled to choose cheaper and unhealthy alternative feeding solutions.

According to the budget proposal presented by the finance minister last week, the government intends to withdraw the zero-rating status of locally produced infant formula, baby food and fortified child nutrition milk powders and impose 18pc GST on it.

“In other countries, governments reduce taxes on such products,” said Akmal, a resident of Lahore, as he “condemned” the government’s move.

“How can people, who are already under immense financial stress, afford costly formula milk and food?” he asked.

Manufacturers want tax to be imposed in three phases

The government’s decision has come at a time when Pakistan was already facing a malnutrition crisis.

Pakistan’s ‘under-five mortality rate’ is 137 for 1,000 births, which is considered very high by international standards.

According to the National Nutrition Survey, 40pc of children in Pakistan are underweight and over half affected by stunting.

In his budget speech in the National Assembly, Finance Minister Muhammad Aurangzeb also mentioned the importance of nutrition in the first 1,000 days of a child’s life and reiterated the need to address stunting before proposing the added GST.

When he was asked about the new tax in his post-budget press conference, the finance minister said “it was not a big deal” as formula milk is purchased by middle and upper middle classes who can also afford the tax.

Considering the high inflationary climate, it is imperative to note that locally produced infant formula, baby food and fortified child nutrition milk powders are priced at approximately 50pc less than imported ones, making them affordable for the masses.

These products are also driving the purchase of 300m litres of milk from local farmers.

‘Impose GST in phases’

A source in the formula milk industry told Dawn that previously, there was no tax on these products. However, three years ago, the government capped the prices at Rs500 per 200gm. Later, it proposed 18pc GST on over 200gm and fixed the prices at Rs600 per 200gms, the source explained. “[Now] the government imposed 18pc GST in the recent budget all of a sudden.”

According to another source, industry representatives gave a detailed presentation to the Senate standing committee on this issue.

They proposed that considering the high inflationary climate and low purchasing power of consumers, a better strategy should be to impose the GST in phases.

“The industry representatives requested the government to either make these products zero rating or impose the tax in three stages, starting from 5pc in the first year, followed by 10pc in the second and the full 18pc in the third year.”

This phased approach will allow businesses and consumers to adjust gradually, minimising the immediate impact on affordability and ensuring a smoother transition, the source reasoned.

Published in Dawn, June 17th, 2024