ISLAMABAD: Despite an alarmingly high stunting rate among children and sliding profits of large milk producers due to high taxes, the PML-N government is unlikely to offer any tax relief to the dairy sector in its upcoming last budget.
Tax authorities on Wednesday did not hint at reversing two regressive tax measures – withdrawal of zero-rated facility that wiped Rs10 billion off the dairy companies’ balance sheet and reduction in regulatory duty on milk-related imports.
Representatives of the Federal Board of Revenue (FBR) and the Pakistan Dairy Association (PDA) met in Islamabad to discuss the industry-specific issues.
Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan chaired the meeting, which was also attended by Minister of State for Finance Rana Mohammad Afzal.
The FBR’s member inland revenue policy underlined the need for stopping consumption of substandard milk when PDA representatives highlighted a drop in sales of processed milk due to the high cost caused by aggressive taxation, according to a meeting participant.
The sector hinted at cutting retail prices of processed milk by about 8% if the government lowered the tax burden.
The association demanded that the FBR restore the zero-rated facility for the dairy sector and abolish 47% duty on imports, according to an FBR official.
Under the zero-rated regime, if tax is paid on the input used in goods manufacturing, the manufacturer can subsequently reclaim the amount.
The dairy sector also sought the withdrawal of 10% sales tax on milk products.
Despite being the third largest milk producing nation, only 5% of milk is processed and packed in the country and the rest remains unprocessed, unregulated and untaxed, according to the PDA’s presentation.
It added that after withdrawal of the zero-rated facility, the gap between processed milk and loose milk prices got bigger, which resulted in a sharp decline in the industry.
Lower profits and a decline in volumes have severely impacted investments in the sector and marred the initiatives taken to develop milk farming communities and a cool chain infrastructure.
Pakistan is among the 10 worst countries in terms of stunting in children with nearly half of its child population stunted due to a lack of quality food and poor hygiene.
Through Finance Acts of 2015-16 and 2016-17, the government imposed 10% sales tax on concentrated milk powder, cream, yogurt, cheese, butter, whey and UHT and fat-filled milk.
Largely because of changes in tax laws, Engro Foods’ profit for 2017 dropped 43.8% to only Rs5.63 billion against Rs10.01 billion in 2016, according to the company’s financial statement.
This has disturbed the business model of FrieslandCampina – the Dutch firm that has bought 51% stake in Engro Foods.
COURTESY: Express Tribune.
