LAHORE: The Pakistan Dairy Association (PDA) on Wednesday said that the price of packaged milk could be reduced by Rs50 per litre if the government lowers the current 18 per cent sales tax to 5.0 per cent, a move that would also encourage investment in the formal dairy sector.
The government removed the zero-rating regime for both liquid and powdered milk under the Finance Act 2024. According to the PDA, this has led to a more than 20 per cent decline in sales and the closure of over 500 milk collection centres. Furthermore, the industry has suspended its annual investment of Rs1.3 billion in farm development and support due to the tax burden.
At a media briefing, PDA representatives -- including Chairman Usman Zaheer, CEO Dr Shehzad Amin, Dr Nasir, and Noor Aftab of Tetra Pak -- called the imposition of 18 per cent GST on packaged milk an “unprecedented” and damaging policy that threatens farmers’ livelihoods, public health, and the viability of the formal dairy sector.
They argued that the tax rate is excessive and unmatched globally. “No developed or developing country imposes such a high tax on a basic nutritional commodity like milk,” they said, describing the measure as an economic anomaly.
Zaheer explained that the formal dairy industry has already begun purchasing 20 per cent less milk from farmers, forcing approximately 35 per cent of those previously in the formal supply chain to revert to the unregulated loose milk trade. About 20 per cent of milk collection centres have shut down, disproportionately affecting small-scale dairy farmers. These farmers have lost quality- and safety-based incentives worth Rs10-15 per litre, while the price of loose milk has surged by Rs30-40 per litre -- a profit that does not benefit producers.
He added that the shift to informal channels is discouraging investment and productivity in dairy farming.Consumers are also facing the impact. With the implementation of the 18 per cent GST, the retail price of packaged milk has risen from Rs280 to Rs350 per litre. Citing a Nielsen study, Zaheer noted that two-thirds of Pakistani consumers earn less than Rs50,000 per month, pushing many low- and middle-income families toward loose milk options that lack safety assurances. “Milk, the most nutritious item in the average food basket, has now become one of the most unaffordable,” he said, stressing that access to safe, nutritious milk should be a basic right.
Amin warned that the formal dairy sector is under severe strain. With processing plants operating at under 50 per cent capacity, companies have halted branding and innovation efforts, while 20 per cent of the formal sector’s workforce has already been laid off. The industry’s Rs400 million annual investment in consumer conversion has ceased. The PDA warned that the country’s $30 billion dairy export potential is now at risk.
“As the formal sector reels under pressure, the unregulated loose milk market is thriving,” Amin said. He estimated that informal milk sellers are capturing nearly Rs1,319 billion annually due to the shift away from packaged milk. “This undermines food safety, public health, and efforts to document the economy,” he added.
To reverse the damage, Dr Nasir proposed reducing the sales tax on milk to 5.0 per cent from July 2025. The PDA projected that this would boost volumes by at least 20 per cent, increase government revenue by 22 per cent YoY, and become revenue-neutral over the next three years. It would also curb the informal economy, restore consumer access to safe milk, and attract renewed investment into farms, processing, and exports.