ISLAMABAD: The formal dairy sector has requested the government to reduce sales tax on milk from 18 percent to 5 percent, through amendments in Finance Bill (2025-26), which will grow volumes up to 20 percent and increase in revenue collection by 22 percent per annum.
Pakistan Dairy Association (PDA) briefed media here on Tuesday that the reduction is crucial because since imposition of tax in July 2024, volumes have declined by 20 percent and governments expected revenue collection is not likely to be achieved.
The remarks were made during a media briefing held in Islamabad, attended by representatives from Friesland Campina, Tetra Pak, and Nestlé Pakistan.
The industry has offered to reduce the milk prices by Rs50 for consumers if sales tax is brought down from 18 to 5 percent in budget (2025-26). It also proposed a little tax on informal sector which is paying nothing in the form of taxes to the national kitty.
The industry is paying 18 percent sales tax, 4 percent further sales tax, 2.5 percent advance withholding tax on sales to un-registered persons as well as Super Tax on direct taxes sides.
The PDA argued that lower taxation would not only make milk affordable and safe for the public but also revitalize the formal
sector, restore investments in farmer development, and increase government revenue.
Speakers emphasized that milk is considered as a zero-rated, essential food item worldwide and in more than 100 countries it is either tax exempted or subject to very little taxation including Bangladesh, India, Europe, Egypt, Sri Lanka, Indonesia and many others. They claimed that even among countries backed by the IMF, Pakistan’s 18% GST on dairy is highest in the world.
Talking about the challenges faced by the dairy industry in Pakistan, Usman Zaheer Ahmad, Chairman PDA claimed that, “Due to the current taxation 20% of workers have been laid off, processing facilities are running at less than 50% capacity.
Now, there is a significant risk to the nation’s $30 billion dairy export potential.” The formal dairy industry has experienced a 20% decrease in milk volumes since its implementation in July 2024, which forces the industry to purchase much less from farmers. This has caused 35% of registered farmers to enter the unregulated, informal milk trade and resulted in the closure of 500 milk collection centers. “We used to invest Rs1.3 billion annually on farmer development. Today, that support is gone,” said Dr Muhammad Nasir, Head of Corporate Affairs Pakistan at Friesland Campina.
Common households are being directly impacted by the tax; the cost of packaged milk has increased from Rs280 to Rs350 per litre, making it the most expensive food item in many households. The demand has decreased by more than 20% as a result.
According to the experts, 91% of milk produced in the unorganized sector does not pass compliance inspections. Dr Shehzad Amin, CEO, PDA stressed that it is unsafe to consume half of the milk, in light of the pervasiveness of malnutrition, the safe milk is a fundamental right and needs to be kept within the means of low- and middle-income families.
Experts brought to attention that despite the Punjab Pasteurization Act of 2017 in place, which requires safe milk practices, we do not see implementation. Noor Aftab, Director Corporate Affairs Pakistan and MENA, Tetra Pak, questioned the rationale behind taxing the only industry making an effort to maintain public health and regulate quality.
Despite these challenges, Pakistan’s dairy export potential remains high. In 2023, the country exported$15 million worth of dairy products. In 2024, exports rose to $35 million, primarily to the Middle East, Africa, and the United States. “We are meeting global standards.
The same products we export are sold locally. Yet, we face the highest utility costs, lowest scale, and the most punitive taxation,” stated Imran Husain, Deputy Managing Director, Friesland Campina. With a fair tax environment and consistent government support, PDA expects the potential revenue from a formalized milk sector could multiply exponentially.
Copyright Business Recorder, 2025
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