ISLAMABAD: Senate Standing Committee on Finance Saturday fully endorsed the proposal of the dairy industry to impose sales tax in a phase-wise manner on locally produced infant nutrition and children fortified milks from July 1, 2024.

During the review of the Finance Bill 2024 at the Parliament House on Saturday, the committee took over one hour to discuss the taxation measure of the Federal Board of Revenue (FBR) to impose 18 percent sales tax on children’s fortified milk.

There was a detailed discussion among the FBR Chairman, committee members and industry representatives on the imposition of 18 percent sales tax on child nutrition products.

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Chairman of the Finance & Revenue Committee, Saleem Mandviwala, recommended to the Chairman FBR, who was also present in the finance committee meeting, to review the proposal for a phased approach to increasing sales tax for locally produced infant nutrition and children fortified milks. This phased increase in sales tax would ensure that the impact on the industry and consumers is manageable and generate revenue for the government, creating a win-win solution. Committee Chairman specifically highlighted the need for support for child nutrition formula for young working mothers to address prevailing malnutrition.

Anusha Rehman, Senator of PMLN, endorsed and supported Chairman Mandviwala’s phased general sales tax (GST) approach as the most formidable solution, which would avoid a sudden 18% GST and additional 6% taxes associated with non-registered retailers. This would result in a higher impact of 25 percent.

Mohsin Aziz, Senator from the opposition PTI, also viewed the sudden raise of GST for baby food and infant milks as unjustified, especially considering our malnutrition challenges.

In response to fellow Senators Sherry Rehman and Farooq Naek, who were recommending that the FBR Chairman control prices of these products, he commented that this is not the way forward. He believed that we must follow the established principle of a market economy, where only the market has to play its role and not the responsibility of the FBR or any government authority. The Chairman FBR also categorically mentioned that under the Sales Tax law, the FBR has no role in controlling prices. Earlier, Farooq Naek said that they recommended a reduction for stationary and a balanced approach needs to be taken to address malnutrition.

Industry representative Sheikh Waqar Ahmad responded to queries and the Chairman of the FBR’s statement on increasing prices. He mentioned that until recently, under the Zero Rating regime, prices were capped at Rs 600 per 200gms, despite over 25 percent average high inflation in the last two years.

This sudden increase of GST from 0 to 18% will have negative consequences for businesses as well as for consumers. He suggested to the members of the Finance committee and the Chairman that as a responsible business, they recommend a phased approach to the GST increase, starting at 5% in first year, followed by 10% in second year, and finally 18% in third year for infant and child nutrition fortified milks.

Sheikh Waqar Ahmad informed the committee that through Finance Bill 2024-25, the government has withdrawn zero-rating (Serial no.12 (xvii) and 17 of the Fifth Schedule of the Sales Tax Act 1990) and imposed 18% GST on locally produced infant formula, baby food and fortified child nutrition milk powders.

The imposition of 18% GST on locally produced infant formula, baby food and child nutrition milk powders is counter-productive and contrary to the government’s priorities.

Considering the high inflationary climate, it is imperative to note that locally produced infant formula, baby food and fortified child nutrition milk powders are priced at approximately 50% less than imported ones, making them affordable for the masses. These fortified child nutrition milk powders are also driving purchase of 300 million litres of milk from local farmers, Sheikh Waqar Ahmad said.

He informed the committee that the heavy taxation will worsen malnutrition amongst infants and young children as a result of parents choosing to shift to unsuitable, unhealthy and inappropriate alternative feeding solutions.

By adopting this phased approach, we can strike a balance between the need for revenue generation, the imperative to safeguard the health and well-being of our infants and children and also protect future investments. It will provide businesses with the necessary time to adapt to the new tax structure, while also allowing families to continue providing their children with the essential nutrients they need for optimal growth and development, Sheikh Waqar Ahmad added.

Copyright Business Recorder, 2024

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