Tax rationalisation for dairy industry under consideration

ISLAMABAD: Adviser to the Prime Minister on Finance Hafeez Shaikh on Thursday assured dairy industry of revisiting the tax structure, including restoration of zero-rated tax facility, in the budget for the next fiscal year of 2020/21.

“The government shall consider the requests of the dairy association with an open mind after reviewing all the facts and related data that could help in taking the best decision in favour of the economy and well-being of the people,” Shaikh said, talking with the members of Pakistan Dairy Association via video link.

The adviser said that he was aware of the importance of the industry and the foremost objective of the current government was to support businesses and provide employment. A committee with representation from finance ministry, the Federal Board of Revenue and the industry was constituted and asked to give its report within a fortnight.

The committee would provide information/data regarding the profit and loss situation of the dairy business across the country, the current rate of utilisation of its full capacity and future possibilities of growth, the cost of relief requested for the government, the overall implications of the relief measures for the industry’s growth, institutional arrangements that could help in the discharge of their liabilities any other factors that should be considered.

The association’s representatives discussed with the adviser the issues the industry has been facing in the recent years and put forth suggestions that could help the industry flourish and expand its base in the near future. They particularly requested the relief in taxation matters, which could make the industry more compatible with the informal sector.

The association demanded the government to restore zero-rating sales tax for dairy products and exempt milk from withholding tax whether it is purchased directly from the farmer or through commission agents. Dairy industry enjoyed the zero-rated regime from 2006 to 2016 when it saw a massive growth of around 130 percent from around 600 million liters to around 1.4 billion liters. Pakistan’s annual milk production capacity is over 40,000 million tons, but only five percent is processed and packaged, whereas 15 percent is wasted due to inadequate refrigeration facilities and 80 percent is sold in loose form.

Dairy industry sought exemption from general sales tax on machinery, equipment and spares meant for initial installation, balancing, modernisation, replacement or expansion of water processing projects.

One percent increase in industry’s market share could translate into 600 million litres milk, Rs36 billion for rural economy, Rs6 billion in additional revenues for government, 2,500 direct new jobs and $12.5 million exports, according to the association. Harmonisation of food standards and its implementation at provincial levels were also demanded, it said.

Dairy products need to be included into the fifth schedule for continuous growth and availability of good quality products to consumers at an affordable cost. Taxation on milk, concentrated cream, and locally-produced full cream milk powder should be taxed in line with liquid milk substitutes.

The association also demanded zero-rating for packaging materials of milk and milk based products. Current sales tax on the packaging materials for use by domestic liquid food packaging industry is anomalous as basic raw materials are levied higher sales tax.

The association said the regulatory duty was imposed on various items with an objective of reducing import bills by curbing imports of luxury and non-essential items.

However, basic raw materials for dairy industry such as milk powder and whey had also been subjected to 25 percent regulatory duty. Import of milk powders is imperative for production of various dairy products in times of milk insufficiency, especially in summers when local supply is not enough to meet demand, it added.

The government was asked to withdraw regulatory duty on the products. Alternatively, duties can be minimized by introduction of quota system. Quota can be restricted for registered manufacturers of dairy products only and can be allowed as a proportion of fresh milk purchases of those manufacturers.