The federal budget 2014-15 has brought relief for the dairy sector as the latter will continue to enjoy zero tax rating (which means that the industry is able to claim taxes on input costs from the government). According to industry sources, this move will positively impact the dairy sector, reducing the costs of the milk processing industry and keeping the prices of packaged milk in check.
The decision to maintain zero rating will increase government revenues coming from the processed milk industry to rise substantially, especially since around 96 percent of the country's milk industry is represented by the unprocessed milk producers who do not pay taxes.
Had zero rating been removed on milk and related items, the price of one litre of unprocessed/unpackaged milk would have increased considerably, which would have translated into an increase in the price of processed/packaged milk. 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 hike. The sector is hopeful that this move will help with its exponential growth, thus making a significant contribution to the economy.
When Pakistan began emulating the zero-rating model for the dairy industry, its processing capacity doubled and investors thought it lucrative to invest in corporate dairy farming. It also led to the development of related industries set up for the breeding and feeding of milk producing animals, and installation of modern milking equipment. As a result, the sector brought in some $500 million in foreign direct investment (FDI).
Continuing with the zero tax regimes will ensure that all this progress does not go to waste and further contribute to the national exchequer. At the end of the day, the benefits of zero tax rating on the dairy sector are immense since it is likely to bring in more capital to the industry. It will also lead to innovation in the sector in order to meet consumers' demand, widen the industrial base of support services, thus bringing about rural development and poverty alleviation, point out analysts. Even though naysayers claim that the federal budget sounds ambitious (with possibly unattainable targets) on paper, it is likely to induce trade and industrial growth - a promising sign for the overall economic health of the country.
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