Keeping milk affordable
The average Pakistani finds himself fighting a battle of sorts on all fronts. Every day, he struggles to cope with the power and gas outages, crumbling infrastructure, health risks and growing terrorism. Add to that the everincreasing cost of living and you’re likely to push him over the edge.
Of course, it doesn’t help that the authorities make living in Pakistan all the more challenging. Consider, for example, the 2013-2014 budget in which a 17 per cent (from 16 per cent) general sales tax has been imposed on most consumer goods. This also meant that previously tax-exempted, zero-rated items such as milk would also be taxed. This was an alarming situation because Pakistan is a nation of milk drinkers. An annual production of 46,000 billion liters puts the country in the top three milk-producing countries of the world. It is clear that the consumption is substantial. According to a Gallup poll conducted in 2011, 39 per cent of the Pakistani population consumes anywhere between one to two liters of milk on a daily basis.
It must be mentioned here that a major portion of the consumed milk in Pakistan is used for hot beverages, primarily tea. A large number of people drink tea three times a day, if not more, for which milk is used as a dairy creamer/whitener. In fact, figures suggest that Pakistan’s consumption of milk related to tea is far more than its use for other purposes. It is for this reason that the imposition of the said tax would lead to dire consequences. For starters, processed milk prices were expected to go up by Rs 5 per liter, a significant increase for a family that consumes a liter of milk every day. The price per liter of fresh milk was also expected to go up by the same margin. Since the monthly household expenditure on milk is far more than on wheat flour – 22 per cent and 12 per cent, respectively – the effect of this price hike was likely to be felt by the consumer. Furthermore, the inflation and associated multiplier effect would have adversely impacted the entire value chain. Some 600,000 dairy farmers, mostly located in Punjab and Sindh, would have suffered as there would have been a decrease in the demand for milk as a result of the price rise.
The Pakistan Dairy Association (PDA) feared that foreign and local investment in the dairy sector would have been discouraged if tax were imposed on the dairy sector and the benefits of the “white revolution” would not have benefited farmers, with the result that consumers would have been deprived of affordable and quality milk.
Thus, soon after the announcement, PDA pressed on the concerned authorities to reconsider its decision to impose taxes on milk. Representatives of PDA gave examples of several countries such as India, USA, UK and Canada where milk remains a subsidized item because it is an important source of nutrition for both children as well as adults. All over the world, the price of essential food items – milk being one of them – is more or less kept affordable whereas, in Pakistan, the trend seems to be the opposite. Prices of essential food items, such as flour, sugar and rice, are constantly on the rise, thus making it impossible for the common man to purchase any of them. Thus, levying a sales tax on milk would have made it unaffordable.
It was in light of these facts that the government decided to reverse its decision to impose sales tax on milk. According to a statement issued by the Pakistan Dairy Association, the government reinstated previously applicable zero-rating on milk to ensure continuous, sustainable growth of the dairy sector and to keep it affordable for the common man. This move would keep the price of milk in check while ensuring that sales continued to grow. It’s not just the dairy sector that stood to benefit from this decision but also the government that would profit from increased revenues. In fact, foreign investment in the dairy sector would increase thus benefiting all stakeholders.
The reinstatement of zero rating would contribute to the livelihood of millions of farmers and industries related to breeding, feeding and milking equipment would also expand. This would lead to an increase in direct investment in the dairy sector, thus improving upon the quality of milk as well as production capacity. It would help in eliminating rural poverty, improving the standard of living and positively contributing to the country’s economy.