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Revisiting the zero-rated tax regime

Revisiting the zero-rated tax regime

As the budget time approaches, with the government mulling clamping import duty on certain dairy items, the Pakistan Dairy Association has started making noises.

The industry’s fears emerge from a promise made by federal food minister Sikander Khan Bosan to reconsider the issue of the existing zero-rated tax regime in the budget-making exercise. Bosan has come under increasing pressure from farmers to do away with the regime, especially for skimmed milk powder, which is used to produce packaged milk.

The minister was presented with documented ill-effects of the zero-rated regime on growers by farmers’ bodies, academics and experts at various forums.

In fact, critics say the import of skimmed milk powder (SMP) has been at the heart of industrial profits at the farmers’ cost. Some say this lowers the cost of production by almost a third when compared with collecting and purchasing local milk. It also insulates milk manufacturing out of seasonal variations, both in production and prices.

According to estimates by some academics, around 57pc of the industrial output is currently based on imported SMP.

The liberal imports have given rise to an expanding list of dairy products that have no relation to milk. A range of products are available in the market — like tea whiteners, dairy liquids and margarines — that have a vegetable source.

The Punjab government recently had to force a multinational to take the picture of a cow off its packets because they contained no milk, as per national food manuals and as well as international specifications for milk. As the Punjab Food Authority checked the disconnect, the fight went right up to the provincial chief executive’s office as the seller was neither ready to back off nor correct the ingredients of the product.

The import of SMP is on the rise despite Pakistan being ranked fourth on the international production index. The farmers claim that the industry is now purchasing milk only to meet its legal obligations. The problem is particularly severe in Punjab because the province produces 75pc of national supplies, compared to 14pc by Sindh, 10pc by Khyber Pakhtunkhwa and 1pc by Balochistan.

Livestock provides a livelihood to a vast majority of small growers, who supplement their meagre farm earnings with a small number of domestic animals. This new phenomenon of relatively cheaper and unchecked SMP imports is now a threat to the vulnerable farmers who have very low incomes.

The livestock sector is already stuck in a vicious circle of low genetic stock, lower productivity and less nutritious fodder for animals, and all of these factors are feeding one another.

Published in Dawn, Economic & Business, May 18th, 2015

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