Say no to Milk tax

Agriculture value-addition is among the emerging industries in the country. The focus of seasoned entrepreneurs, donor agencies and big corporations is now on extracting maximum benefits from this, as yet untapped market. Within this sector processed milk is one of the prime segments.
The industry size has more than doubled in the past five years with the emergence of players like Engro in competition to decades old Nestle. A few big industrialists in Punjab with a wide array of industries under their belts have also ventured into marketing and processing milk business. Other business giants, like Mian Mansha have similar projects in the pipeline.
This all speaks for the enormous potential of not only catering to the domestic market but also to export from the worlds fourth largest milk producer. These companies are all geared up to develop the market linkages and slash wastage of milk. They are also working on farmers education to enhance the yield of animals.
Milk consumption constitutes 22 percent in household expenses and a weight of 7.4 percent in the CPI Index - higher than wheat. Within the past five years, milk prices have almost doubled and are increasing the burden on common mans budget.
The milk price is higher in Pakistan than in developed countries like US and New Zealand. There is a need for the government to facilitate milk processing companies to help in further increasing yield and reducing wastages. Unfortunately, the government appears to be heading in the opposite direction, with chatter of a likely sales tax on processed milk.
Industry insiders fear that would raise the burden on the common man and may reduce domestic consumption of milk. Although processed milk is a mere seven percent of total milk consumption and that is skewed towards the higher income bracket of population, any increase in its price can cascade to a hike in the price of open milk as well.
Owing to lower propensity to pay, both Nestle and Engro are selling their UHT milk at Rs5 discount to retail price of Rs90 per litre. If 16 percent sales tax is imposed the sales of processed milk may reduce substantially. That will push the demand of open milk high and may result in hike in its price as well.
It is pertinent to note that about 80 percent of UHT milk sales are of quarter-litre packs which are primarily used by lower income groups and in areas where fresh milk is not accessible. Any form of tax on such products is likely to exacerbate the nutrition level of these groups.
Plus, any form of new taxation on a growing industry may discourage new entrants. This could reverse the process of developing markets in milk collection and could hamper the process of increasing yield of animals.
Authorities should keep in mind that in many economies even where per capita incomes are significantly higher than in Pakistan, tax on milk consumption is zero-rated. Revenue generation is necessary given the current fiscal constraints, but it should not come at a price of hindering the growth of an emerging industry and making an essential food item dearer.