High 18% sales tax slashes production, stalls investment, and jeopardizes export growth.
The Pakistan Dairy Association (PDA) reports that following the imposition of an 18% GST on packaged dairy products in July 2024, the formal dairy sector experienced a 20% drop in production and sales, highlighting the steep immediate impact of this fiscal policy. This decline has stalled multi-million-dollar investments and triggered the closure of roughly 500 milk collection points while reducing formal employment by 20%.
Prior to the tax increase, the dairy industry contributed approximately Rs13.7 billion through income and super taxes. The addition of GST raised total tax revenue to Rs44 billion, but PDA warns this apparent windfall masks a risk of long-term decline due to faltering sector growth and revenue sustainability.
The PDA, alongside major industry players like Friesland Campina, Tetra Pak, and Nestlé, has proposed slashing the GST from 18% to 5%—with an added 2% levy on unregulated loose milk—to stabilize volumes, support health standards, and potentially increase revenue by 22%. They emphasize that over 90% of loose milk, largely unregulated, carries safety risks, asserting that affordable packaged milk is key for both public health and tax collection.
On the export front, Pakistan’s packaged milk shipments rose from US$15 million in 2023 to US$35 million in 2024, mainly to the Middle East, Africa, the U.S., and Central Asia. However, dairy leaders caution the GST hurdle will impede reaching the 2025 target of US$70 million, threatening growth and competitiveness.
The PDA warns that lingering high taxes and faltering domestic demand endanger farm-gate prices and drive farmers and consumers toward informal markets. They underscore that global norms tax dairy at just 5% or less, contrasting sharply with Pakistan’s 18%, and warn the sector’s long-term viability hinges on fiscal reform.
The Express Tribune – Dairy sector shrinks 20% after GST blow
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