The government is considering implementing an 18 percent sales tax on packaged milk in the upcoming budget. This could result in higher prices for consumers and the food industry at a time when the latter is already dealing with heavy taxation on juice products.
Reports reveal that the Federal Board of Revenue (FBR) will use this to collect over Rs. 30 billion in additional taxes annually, starting from the fiscal year 2023-24. However, Finance Minister Ishaq Dar has expressed concerns about the potential impact on consumers due to the country’s high inflation levels.
FBR’s proposal includes eliminating the zero-rating facility for the dairy sector. Currently, milk producers can claim refunds on the inputs they purchase. Packaged milk is typically sold at around Rs. 260 per liter, and an 18 percent tax would translate to an additional cost of Rs. 46 per liter.
During discussions on withdrawing the zero-rating facility, the finance minister expressed concerns about its potential social repercussions. He also considered the implications of imposing an 18 percent sales tax on non-packaged milk, which could prompt milkmen to raise prices. Reports indicate that the government is unlikely to endorse the FBR’s proposal.
In May, the inflation rate reached an all-time high of 38 percent. Levying taxes on food items in an election year could prove costly for the government. The zero rating for the dairy industry was introduced in the 2021-2022 budget to support its growth. Taxing these products would increase costs for consumers and potentially lead to reduced demand, impacting the industry.
Pakistan faces a significant challenge with one of the highest rates of malnutrition globally. An estimated 43.7 percent of children under five experience stunted growth, 17 percent suffer from physical weakness, and 31.5 percent are underweight. Malnutrition is particularly prevalent in rural areas where access to nutritious food is limited.