Pakistan Faces Industry Backlash Over 18% Sales Tax on Packaged Milk

The Pakistani government on Thursday pledged to reevaluate the controversial 18% sales tax on packaged milk. This tax, reported to be the highest globally on branded milk, has ignited criticism from both consumers and the dairy industry.

The commitment to reexamine the tax came during a meeting between Finance Minister Muhammad Aurangzeb and the Pakistan Dairy Association (PDA), the body representing the packaged milk sector. The association urged the government to lower the tax to 5%, a rate more aligned with international standards.

The PDA presented independent surveys to the minister, highlighting that the 18% tax was neither standard globally nor justified by consumption patterns within Pakistan. Contrary to the government's claims, packaged milk is a staple for many low-income citizens.

Initially imposed to generate Rs50 billion in additional taxes, the 18% sales tax was part of a broader fiscal strategy but quickly led to a significant downturn in the dairy sector, with sales witnessing a marked decline.

Prime Minister Shehbaz Sharif's decision to implement the tax saw milk prices soar by Rs70 per kg, marking a 28% increase. In a country beset by malnutrition challenges, with 40% of children stunted, experts warn the tax poses a serious threat to public health.

During discussions, the PDA underscored that 64% of packaged milk buyers earn below Rs50,000 a month, aligning with the income threshold exempt from income tax. Yet, packaged milk remains one of the costliest items in the food basket.

Globally, Pakistan's stance stands out. Countries like the United States and Canada have zero tax on milk, while in nearby Sri Lanka and the United Kingdom, the rates are 8% and 9%, respectively.

The industry faces severe strains, with a reported 20% drop in sales volume since the tax's introduction and a consequent shift to unregulated loose milk trades. The move has led to the closure of around 500 milk collection centers and a loss of formal sector supply to informal markets.

The PDA voiced concerns about the sale of unsafe milk, with a collaborative study identifying 45% of loose milk as unfit for consumption. This situation is exacerbated by producers operating below optimal capacity and reporting significant job losses.

While the government deliberates on possible tax alterations, industry stakeholders remain cautious, predicting further closures and financial strain if the current policy persists.