Budgetary measure will push prices upward: dairy sector official tells NA body

A senior representative of the dairy sector Thursday informed National Assembly Standing Committee on Finance that the budgetary measure of the Federal Board of Revenue (FBR) on dairy sector will push prices upward by Rs 6-8 per litre at least, making dairy products and all micro-nutrient fortified products unaffordable to the general public.
Waqar Ahmad Director Corporate Affairs Nestlé Pakistan & Afghanistan informed the NA committee that the price of packaged milk would go up by Rs 7- 8 per liter if the Parliament approved conversion of zero rating into exemption regime in the Finance Bill 2016-17 as this would hike up their input cost. Most of the members of the committee endorsed the viewpoint of Waqar recommendation to take away the budgetary measure of the FBR regarding withdrawal of zero-rating on dairy sector.
He said that this sector was contributing heavily into GDP. The industry's representatives informed that they were getting milk at average price of Rs 45 per liter and now the zero rating regime abolished. They said that foreign investment in the pipeline to the tune of $500 million would be in danger if these taxes were not abolished. The packaged milk, they said, got share of 6 percent while remaining 94 percent were in hands of milkmen who sold open milk without any process.
In his presentation to the Parliamentarians, Waqar Ahmad said that taxing milk and dairy is taxing nutrition in the country, as milk is main source of nutrition for all ages. Malnutrition is a major issue in Pakistan and the micro-nutrient deficiencies are hurting the productivity of the country today as well as in the future. The new budget has withdrawn Zero-Rating for the dairy sector. This plus all other changes in the Budget will lead to consumer price increases, which will make the Dairy (practically all micro-nutrient fortified products) less affordable to the people that need these products the most, he said. Explanation of Exempt regime: "the sales tax paid on raw & packing materials, services (mainly include: transportation, 3rd party labour, warehousing, advertisement, franchise fee, IT fee etc) and utilities become part of cost which results in to high cost."
This added cost will further cause increase in price of all milk and dairy products to customers/consumers. Only in case of milk, it will push prices upward by Rs 6-8 per litre at least. In Zero Rated regime, sales tax paid in all above mentioned value chain categories will be claimed as Sales Tax Refund from FBR, he maintained. He highlighted that the dairy sector contributes 11% of GDP; milk and Dairy Products account for 22% of kitchen expenditure (compared to wheat, which is 12 %); milk and dairy is main source of nutrition for children and adults of all ages ; rural livelihood of 600,000 farmers affiliated with dairy industry value chain will be negatively impacted due to decrease in demand of milk purchased by the industry. Dairy industry buys approx. Rs 45 billion worth of milk every year from rural economy.
In case of urban consumers will be forced to pay more for dairy and milk products (only packaged milk will go up Rs 6-8 per litre). Consumers will be pushed to use unhygienic loose milk as governments has no quality control over it. Furthermore, increase in prices of packaged milk will also drive increase in price for loose milk. The 70% of total processed milk produced is sold in 250 ml to social groups of C&D. It is mainly because of tetra packaging and have long life without refrigeration.
Pakistan Dairy Association proposed continuity of Zero rating for Milk and Dairy sector without any exclusions (liquid milk, locally produced powder milks for children, fat filled milks, yogurts, cheese, butter etc) and continuity of existing tariff regulatory regime for imported milk powders Nestlé SPECIFIC suggestion revealed that locally produced pure milk powders were taxed 10% sales tax in the 2015 budget. Milk powders are only produced by Nestlé Pakistan in the country. Over USD 300 million investments are being made in past 5 years.
If the zero rating tax regime is not continued, we fear that the health and nutrition status of Pakistanis will be negatively impacted. The gains which you and your administration have strived so hard to attain will be forever lost. Furthermore, such policies will dampen foreign investors' interest, including that of global corporate giants such as Friesland Campina, who are seeking majority shareholding of Engro Foods by injecting nearly half a billion US dollars into the company. For such investments to materialise, a robust regulatory framework must be in place that safeguards the health and nutrition status of the Pakistani people and also allows for the growth of the dairy sector by allowing a level playing field where different actors are encouraged to invest and build businesses, Director Corporate Affairs Nestlé Pakistan & Afghanistan added.