Govt Likely to Amend Finance Bill 2024 For Phase-Wise Implementation of Sales Tax on Formula Milk

The government may amend Finance Bill 2024 to impose phase-wise sales tax on infant formula etc.

The phase-wise taxation under the new tax policy would be considered by the budget markers during the finalization of the recommendations under the Finance Bill 2024.

Finance Bill 2024-25, recently introduced by the government, has withdrawn the zero-rating (Serial no.12(xvii) and 17 of the Fifth Schedule of the Sales Tax Act 1990) and imposed an 18 percent sales tax on locally produced infant formula, baby food, and fortified child nutrition milk powders.

Finance Minister Muhammad Aurangzeb, in his budget speech, emphasized the importance of nutrition in the first 1,000 days of a child’s life and reiterated the need to address stunting. However, the imposition of an 18 percent sales tax on locally produced infant formula, baby food, and child nutrition milk powders is seen by industry experts as counterproductive and contrary to the government’s stated priorities.

Sources told ProPakistani that the FBR and Senate Standing Committee on Finance have received recommendations to introduce sales tax in three stages: starting at 5 percent in the first year, increasing to 10 percent in the second year, and finally reaching the full 18 percent in the third year.

This proposed phased approach aims to allow businesses and consumers to adjust gradually, minimizing the immediate impact on affordability and ensuring a smoother transition.

The industry has warned that the government’s most recent decision of 18 percent sales tax on business and consumers across, will not just dent its long-term revenue plans, but also prove to be detrimental as businesses will shrink and eventually exit the country, withdrawing much-needed foreign investment.

Amid the ongoing high inflationary climate and the inelastic buying power of consumers, industry experts have advised the government to implement a phased imposition of the General Sales Tax.

Industry representatives argue before the Senate Standing Committee on Finance that the strategy would balance the need for revenue generation with the imperative to safeguard the health and well-being of infants and children.

It would also protect future investments by providing businesses with the necessary time to adapt to the new tax structure. Additionally, families would continue to provide their children with essential nutrients needed for optimal growth and development.

Given the high inflationary climate, it is essential to note that locally produced infant formula, baby food, and fortified child nutrition milk powders are priced at approximately 50 percent less than imported ones, making them more affordable for the masses. These products also drive the purchase of 300 million liters of milk from local farmers annually.

Experts warn that the heavy taxation could worsen malnutrition among infants and young children, as parents may be forced to shift to unsuitable, unhealthy, and inappropriate alternative feeding solutions. Pakistan is currently facing a malnutrition crisis, among the worst in the world.

The under-five mortality rate, a key indicator of community health and nutritional status, stands at 137 per 1,000 births, which is alarmingly high by international standards. According to the National Nutrition Survey, 40% of children in Pakistan are underweight, and over half are affected by stunting.

Industry stakeholders in a recent meeting with the Senate Finance Committee urged the government and opposition Senators to recommend the phased imposition of GST to mitigate the adverse effects on child nutrition and health, ensuring a more balanced and sustainable approach to tax implementation.

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