The government has decided to withdraw a major budget proposal to increase the sales tax on dairy products from 10 percent to 17 percent, highly-placed officials in the Finance Ministry told Propakistani on Friday.
Through the Finance Bill 2021, the government has increased sales tax from 10 to 17 percent on cream, butter, yogurt, cheese, dairy powder, and tea whitener, etc.
Now the government has decided to restore the 10 percent reduced rate of sales tax on dairy products from 2021-22.
In another major development, the government has also decided to change the status of sales tax from exemption to zero-rating on milk. The change in the status from the exemption to zero-rating was a demand of the dairy sector.
At the conclusion of a meeting between Finance Minister Shaukat Tarin and the dairy sector at the Ministry of Finance on Friday, the government understood the problems of the dairy sector and decided to reverse the sales tax rates from 17 to 10 percent on dairy products.
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Earlier, the imposition of 17 percent sales tax on dairy products would have a revenue impact of over Rs 5 billion on the dairy sector for 2021-22. The 10 percent sales tax was applicable on certain dairy products like cream, butter, yogurt, cheese, dairy powder, and tea whitener etc.
In the budget (2021-22), the Federal Board of Revenue (FBR) has imposed 17 percent sales tax on dairy products. The industry was expecting the restoration of the zero-rating facility, but the government had imposed a 17 percent sales tax on dairy products having serious implications on the health sector.
During the budget exercise, the dairy sector had asked the government for its support through positive measures in the budget 2021-22 including zero-rating for the dairy sector. The budget 2021-22 has negatively impacted the dairy sector with over and above Rs. 5 billion impact due to a rise in sales tax from 10 percent to 17 percent.
Within the three years period, the impact of revenue on the dairy sector would go up to Rs. 15 billion.
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