LAHORE: The Pakistan Dairy Association (PDA) has voiced deep concerns over the 18 per cent sales tax on packaged milk, warning of severe repercussions for farmers, public health, and the formal dairy sector.

During a media briefing on Wednesday, PDA Chairman Usman Zaheer, CEO Dr Shahzad Amin, Dr Nasir, and Noor Aftab highlighted that this unprecedented tax, applied to both liquid and powdered milk, is “globally unmatched” and an “economic anomaly”.

According to the PDA, the formal dairy industry has already reduced milk purchases from farmers by 20pc, pushing approximately 35pc of farmers into the unregulated loose milk market. This shift has resulted in the closure of around 20pc of milk collection centres, particularly affecting small-scale farmers who have also lost quality and safety incentives. Simultaneously, loose milk prices have surged by Rs30-40 per litre, with no benefit to producers, disincentivising investment in dairy farming.

Mr Amin stated that over 500 milk collection centres have been shut down and the industry has halted Rs1.3 billion in annual farm development investments, and processing plants are operating below 50pc capacity, leading to eroded profitability and a halt in branding and innovation investments. Approximately 20pc of employees in the formal dairy sector have been laid off, jeopardising Pakistan’s $30 billion dairy export potential.

Conversely, the unregulated loose milk market is flourishing, with PDA estimating that the informal sector is gaining approximately Rs1,319 billion annually due to the tax-induced price gap. This not only threatens public health but also bolsters the undocumented economy and undermines food safety efforts.

To mitigate these adverse effects, Dr Nasir proposed reducing the sales tax rate on milk from 18pc to 5pc. Projections suggest this would lead to a 20pc growth in volumes and a 22pc increase in government revenue year-on-year, becoming revenue-neutral within three years and fostering consistent growth thereafter, he claimed.

Published in Dawn, June 19th, 2025