The Battle of Dairy in Pakistan: Revenue, Challenges, and Opportunities
In recent times, Pakistan’s dairy industry has found itself in a precarious situation. The government’s decision to impose an 18% General Sales Tax (GST) on dairy products might have generated a staggering Rs44 billion in revenue. However, this move has come with significant consequences. The production and sale of dairy products have dropped by a worrying 20%, leaving many in the industry concerned about the future.
According to officials from the Pakistan Dairy Association (PDA), this drastic decline has led to halted investments that once flowed into the sector. Millions of dollars that could have been utilized to enhance production and innovation are now stagnating due to rising costs. In a troubling trend, around 500 milk collection points, vital for farmers selling their products, have closed down, resulting in job losses for about 20% of the workforce.
Companies like the PDA have revealed that Pakistan is in stark contrast to over 100 countries, including regional neighbors like India and Bangladesh, where dairy products are taxed at much lower rates or not taxed at all. Instead of stimulating growth, the heavy tax burden has stifled the very industry it was meant to support. Before the GST was imposed, the dairy sector was already a significant contributor to the economy, generating over Rs13.7 billion through various taxes. The increased GST rendered these figures hollow, as the sales and production declines pose serious threats to the industry’s sustainability.
A grave concern raised by PDA officials is the public’s perception of loose versus packaged milk. Currently, a staggering 92% of the population opts for loose milk, which poses severe health risks, while only 3-4% consume safer packaged alternatives. This perception shift is crucial for the country to overcome its taxation challenges and improve public health standards.
Interestingly, despite these obstacles, the dairy sector has managed to export an impressive $35 million worth of packaged milk this fiscal year—a significant increase compared to the previous year. However, the industry is calling for a reevaluation of the GST, indicating that a reduction could not only enhance tax revenues but also boost production and employment.
With 45% of loose milk deemed unsafe due to bacterial contamination risks, it’s essential to transition the massive undocumented Rs1.3 trillion loose milk economy into the formal sector. Additionally, the PDA has been proactive in expanding exports to various international markets, including the Middle East, Africa, and the US, with plans to reach China as well.
The challenges facing Pakistan’s dairy sector are substantial, but so too are the opportunities for growth and improvement. As stakeholders push for better policies, it remains to be seen how the government will adapt in response to the evolving needs of this vital industry. A balanced approach, with considering both taxation and health standards, could ultimately lead to a thriving dairy sector in Pakistan, benefiting farmers, consumers, and the national economy alike.
