Title: Revisiting The Zero Rated Tax Regime

Written By: Ahmad Faraz Khan

Published: May-18th-2015

Source: Dawn News

Articles Theme:
Pakistan’s population has increased from 65 to 161 million over the past three decades,
and is forecast to grow to 234 million by 2025 (ACR, 2006). Consequently, the country has been
facing a domestic deficit in milk supply. According to an FAO-sponsored study (Social Science
Institute NARC, 2003), in 2003, the gap between production and consumption was estimated at
3.5 million tones (10 percent). The study forecast that this gap will widen considerably, reaching
an estimated deficit of 55.48 million . In Pakistan, the import of Skimmed Milk Powder (SMP) is
under the zero-rated tax regime which reduces its cost and is beneficial for manufacturers of
packaged milk and dairy products. This is an economic disaster for the local milk supplying
farmers because instead of buying milk from them, the dairy industry is importing SMP. Even
though the critics say that importing is cheaper but that is causing severe damage to the local
farmers and milk producers. A lot of people depend on the sale of milk their farms produce
financially. The imports have always been higher than the export rate of Pakistan and adding on
bulk in the milk sector would impact the currently crippled economy in a negative way. The only
positive is that the dairy product line is expanding for the end consumer but also is giving out
products under the same category which are not containing any nutrient derived from milk. And
the government is taking notices of such activities and taking action against such producers.

Short Comings:
1.The taxes will increase cost of doing business by seven percent, push up price of processed
milk by Rs 6 per liter and reduce its demand by 20 percent, hitting tax collection and hurting
600,000 people linked to milk business.

2. The global milk demand is set to increase by 36 percent during the nine years which can be an
opportunity for Pakistan, adding that the situation demands patronage by the government as
despite 70.5 million animals average milk production is 4-5 liters per animal which is 30-40
liters in developed nations.
3. A farmer who sells natural milk and whose sole income relies on livestock suffers a lot when
the market is dominated by skimmed milk powder (SMP). The Government should supoort the
farmers and it is necessary that the Government reduces the import of SMP so that people should
buy milk more frequently from farmers

4.  Another drawback of SMP is that most industries are making products that don't contain a
milk source so people are compromising on their health and are paying money for the product
which they think is made from a milk source but in reality these people are being cheated upon.
So Government should not allow industries to have access to SMP's and rather try to link up the
farmers with these industries in order to ensure that the products are made from a milk source

5. SMP contains nitrogen oxide and nitrogen sulphate, both are used to restore the freshness and
to keep the SMP from expiring, but these are major carcinogens and are assissting in the
spreading of cancer, which ultimately gives a rise to health expenditure of the country.

Recommendations:
1. Citing Indian example that Indian farmers get numbers of incentives and subsidy by
their government whereas in Pakistan farmers are facing high input costs and are
deprived of right price for their milk.If the government of Pakistan cannot provide
incentives to the Pakistani farmers just like Indian Government does, it should at least
provide a level playing field for Pakistani farmers. The Government, especially
Minister for Food Security and Research Sikandar Hayat Bosan was appreciated for
listening to the issues of farmers and taking this matter at high levels, being the
custodian of farmers as he has been mandated for food security in the country.
2. The government can offer both micro and macro loans to assist the farmers and also
levy heavy fines or penalties for those not meeting the preset standards or
benchmarks.
3. A farmer who sells natural milk and whose sole income relies on livestock suffers a
lot when the market is dominated by import of skimmed milk powder (SMP). The
Government should supoort the farmers and it is necessary that the Government
reduces the import of SMP so that people should buy milk more frequently from
farmers
4. SMP imports affect the farmers greatly as 57 percent of the industrial output is
currently based on imported SMP's because the industries find the SMP's cheaper.
Pakistan is an agricultural country and most of the people are farmers so their
livelihood depends on livestock and dairy products. SMP imports are a major threat to
farmers who already have very low incomes. Government should start a scheme for
farmers and and should focus on the farmers rather than importing SMP.
5. There should be strict quality checks and ISO standards to keep a check on the
products being sold in the market that are linked to the dairy sector and contain milk
content, they should be healthy and should have a certain amout of health benefits.
Those products that fail to meet the stadards should be black listed from out local
market.