Pakistan Dairy Association Proposes Tax Reduction Plan

The Pakistan Dairy Association has offered a significant drop in milk prices, suggesting a Rs50 per litre reduction, should the sales tax rate be revised from the current 18% to a mere 5% in the federal budget for the fiscal year 2025-26. This proposal comes in the wake of the government's decision not to cut sales tax on packaged dairy milk, which has sparked concern among industry members. The association warns of potential declines in revenue collection and industry exports if the current tax rate is maintained.

In 2023, tax collection on packaged dairy milk stood at Rs13 billion, which surged to Rs44 billion in 2024. "This is for the first time that a tax hike may actually lead to a drop in tax receipts," cautioned Usman Zaheer, chairman of the Pakistan Dairy Association, at a recent press conference. The industry has expanded its exports, rising from $15 million in 2023 to $35 million in 2024, with ambitions to hit $70 million. However, these targets may be jeopardized due to the elevated tax rates.

The association reports that since July 2024, the sales volume has declined by 20%, predicting further decreases unless tax revisions occur. A reduction in the sales tax to 5% starting July 2025 could potentially boost volumes by 20% and augment government revenue by 22% year-on-year. Furthermore, it could spur investments in dairy farms, processing facilities, and expand exports, simultaneously reducing the reliance on the informal economy.

The association emphasizes that lower taxes will contract the undocumented market by curbing the consumption of loose milk. Consequently, consumers would benefit from a reduction in milk prices by Rs50 per litre, providing financial relief to households and stimulating growth in the dairy sector.