Pakistan Dairy Association urges tax cut to revive formal milk sector

PAKISTAN – Pakistan Dairy Association, a representative body of the country’s formal dairy industry, has proposed a significant drop in milk prices, suggesting a Rs50 per litre reduction, should the sales tax rate be revised from the current 18% to a mere 5% in the federal budget for the fiscal year 2025-26.

The Pakistan Dairy Association (PDA) has proposed a significant reduction in the general sales tax (GST) on packaged milk, from the current 18% to just 5%.

The association argues that this move would not only make milk more affordable for consumers but also reinvigorate the formal dairy sector, which has been struggling under the weight of heavy taxation.

Since the imposition of the 18% GST in July 2024, the industry has seen a 20% drop in sales volumes, with many consumers reverting to loose milk, which now accounts for 92% of the market.

The PDA warns that this shift undermines food safety, as nearly half of loose milk is considered unfit for consumption. In contrast, packaged milk adheres to international quality standards and supports a regulated supply chain.

Chairman of the Pakistan Dairy Association, Usman Zaheer, said, “If the government had reduced the sales tax from 18% to 5%, we could have generated more tax revenue from the dairy sector in the coming years. The imposition of the 18% GST on dairy products, particularly packaged milk and powdered milk, has led to a 20% drop in daily industry sales.”

To incentivize the government, the PDA has pledged to reduce packaged milk prices by Rs50 per liter if the tax cut is implemented.

This would be a welcome relief for the 64% of packaged milk consumers who earn less than Rs50,000 per month. The association also projects that a lower tax rate could boost sales volumes by 20% and increase government revenue by 22% annually through greater market formalization2.

The economic toll of the current tax regime has been severe. Over 500 dairy units have shut down, 20% of the workforce has been displaced, and milk procurement from farmers has declined.

The PDA emphasizes that the tax burden is pushing farmers and processors into the informal economy, where quality controls and fair pricing are absent.

With exports of packaged milk doubling to US$35 million in 2024 and new markets emerging in Central Asia and China, the PDA believes that a tax reduction could unlock further growth and investment.

The association maintains that aligning with global norms—where milk is often tax-exempt—would benefit consumers, farmers, processors, and the government alike.

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