Pakistan Dairy Sector at Risk: PDA Demands Urgent GST Cut to Save Formal Milk Industry

Islamabad, June 2025 — The Pakistan Dairy Association (PDA) has issued a stark warning over the future of the country’s formal dairy sector, describing it as being on the brink of collapse due to the imposition of a high General Sales Tax (GST) on packaged milk products. In a high-profile press conference, PDA officials declared the current 18% GST as not only unprecedented globally but also economically devastating for both producers and consumers.

Historic Burden on a Vital Industry

The formal dairy industry, which has long been a key pillar of Pakistan’s food security and rural development, is now grappling with what stakeholders describe as the “highest GST rate on milk in the world.” The tax was introduced as part of the Finance Act 2024, which abolished the zero-rating status previously enjoyed by both liquid and powdered milk.

This policy change was ostensibly aimed at broadening the tax base and increasing revenue collection. However, experts and industry insiders argue that it has had the opposite effect. Instead of improving tax revenue, it has drastically reduced the size of the formal sector, leading to reduced employment, investments, and overall economic contribution.

PDA Sounds the Alarm

During a media briefing attended by major industry representatives including PDA Chairman Usman Zaheer, CEO Dr. Shehzad Amin, and Tetra Pak’s Director of Corporate Affairs (Pakistan and MENA) Noor Aftab, the dairy sector’s plea was clear: reduce GST from 18% to 5% in the upcoming federal budget.

Dr. Amin, while addressing the gathering, noted, “The impact has been immediate and deeply damaging. Since the 18% GST was imposed, formal milk volumes have declined by 20%. That’s not just a statistic—it represents families pushed out of secure employment, investments that are now on hold, and consumers who are being forced to opt for unregulated and unsafe milk options.”

Economic Fallout: Production and Jobs Hit Hard

The scale of the fallout has been staggering. The PDA revealed that more than 500 milk collection centers have been shut down across the country. These centers were critical to the supply chain, connecting rural dairy farmers with urban processing facilities. Their closure has disrupted livelihoods for thousands of small-scale farmers and transporters.

Moreover, the formal sector has seen over 20% of its workforce laid off. This includes factory workers, quality inspectors, logistics personnel, and field support teams—jobs that offered stability and benefits under formal employment regulations.

“Factories that once operated around the clock are now functioning at less than 50% capacity,” said Zaheer. “This is not just a slowdown—it’s a shutdown in slow motion.”

Shift to the Informal Sector: A Dangerous Trend

One of the most concerning trends identified by PDA officials is the rapid shift of dairy farmers and distributors back to the informal sector. Dr. Amin estimated that approximately 35% of previously formal suppliers have now reverted to unregulated operations to avoid the tax burden.

This transition carries multiple risks. Informal milk distribution lacks proper quality checks, cold chain logistics, and traceability. Consumers may unknowingly consume adulterated or contaminated milk, which poses a serious public health threat.

From an economic standpoint, the informal sector contributes little to no tax revenue and lacks accountability. Yet, according to PDA estimates, this shadow market has gained approximately Rs. 1,319 billion in the past year alone due to the price gap created by the GST on packaged milk.

Islamabad, June 2025 — The Pakistan Dairy Association (PDA) has issued a stark warning over the future of the country’s formal dairy sector, describing it as being on the brink of collapse due to the imposition of a high General Sales Tax (GST) on packaged milk products. In a high-profile press conference, PDA officials declared the current 18% GST as not only unprecedented globally but also economically devastating for both producers and consumers.

Historic Burden on a Vital Industry

The formal dairy industry, which has long been a key pillar of Pakistan’s food security and rural development, is now grappling with what stakeholders describe as the “highest GST rate on milk in the world.” The tax was introduced as part of the Finance Act 2024, which abolished the zero-rating status previously enjoyed by both liquid and powdered milk.

This policy change was ostensibly aimed at broadening the tax base and increasing revenue collection. However, experts and industry insiders argue that it has had the opposite effect. Instead of improving tax revenue, it has drastically reduced the size of the formal sector, leading to reduced employment, investments, and overall economic contribution.

PDA Sounds the Alarm

During a media briefing attended by major industry representatives including PDA Chairman Usman Zaheer, CEO Dr. Shehzad Amin, and Tetra Pak’s Director of Corporate Affairs (Pakistan and MENA) Noor Aftab, the dairy sector’s plea was clear: reduce GST from 18% to 5% in the upcoming federal budget.

Dr. Amin, while addressing the gathering, noted, “The impact has been immediate and deeply damaging. Since the 18% GST was imposed, formal milk volumes have declined by 20%. That’s not just a statistic—it represents families pushed out of secure employment, investments that are now on hold, and consumers who are being forced to opt for unregulated and unsafe milk options.”

Economic Fallout: Production and Jobs Hit Hard

The scale of the fallout has been staggering. The PDA revealed that more than 500 milk collection centers have been shut down across the country. These centers were critical to the supply chain, connecting rural dairy farmers with urban processing facilities. Their closure has disrupted livelihoods for thousands of small-scale farmers and transporters.

Moreover, the formal sector has seen over 20% of its workforce laid off. This includes factory workers, quality inspectors, logistics personnel, and field support teams—jobs that offered stability and benefits under formal employment regulations.

“Factories that once operated around the clock are now functioning at less than 50% capacity,” said Zaheer. “This is not just a slowdown—it’s a shutdown in slow motion.”

Shift to the Informal Sector: A Dangerous Trend

One of the most concerning trends identified by PDA officials is the rapid shift of dairy farmers and distributors back to the informal sector. Dr. Amin estimated that approximately 35% of previously formal suppliers have now reverted to unregulated operations to avoid the tax burden.

This transition carries multiple risks. Informal milk distribution lacks proper quality checks, cold chain logistics, and traceability. Consumers may unknowingly consume adulterated or contaminated milk, which poses a serious public health threat.

From an economic standpoint, the informal sector contributes little to no tax revenue and lacks accountability. Yet, according to PDA estimates, this shadow market has gained approximately Rs. 1,319 billion in the past year alone due to the price gap created by the GST on packaged milk.

Investment Freeze and the Future of Dairy Innovation

The high tax has also cast a dark shadow over future investments. Dr. Amin disclosed that planned investments worth Rs. 1.3 billion in dairy processing and farm development have been put on indefinite hold. These investments were intended to modernize production facilities, introduce climate-resilient practices, and improve nutritional standards in line with global benchmarks.

“Every rupee that’s not being invested is a missed opportunity for Pakistan’s agricultural future,” noted Noor Aftab. “We were on the path to becoming self-sufficient in dairy and even an exporter in the future. Now, even self-sustainability is under threat.”

Government Revenue: A Miscalculated Strategy?

Perhaps the most ironic consequence of the 18% GST is that it may not even be achieving its stated purpose—increasing government revenue. The PDA argues that a smaller, weaker formal market ultimately leads to lower tax collection. In contrast, a 5% GST rate, according to industry estimates, would revive formal milk volumes by at least 20% and increase tax revenues by 22% year-on-year.

“By lowering the GST, you expand the tax net organically,” said Aftab. “More people stay within the formal economy, which means more compliance, more documentation, and ultimately more revenue for the government.”

Investment Freeze and the Future of Dairy Innovation

The high tax has also cast a dark shadow over future investments. Dr. Amin disclosed that planned investments worth Rs. 1.3 billion in dairy processing and farm development have been put on indefinite hold. These investments were intended to modernize production facilities, introduce climate-resilient practices, and improve nutritional standards in line with global benchmarks.

“Every rupee that’s not being invested is a missed opportunity for Pakistan’s agricultural future,” noted Noor Aftab. “We were on the path to becoming self-sufficient in dairy and even an exporter in the future. Now, even self-sustainability is under threat.”

Government Revenue: A Miscalculated Strategy?

Perhaps the most ironic consequence of the 18% GST is that it may not even be achieving its stated purpose—increasing government revenue. The PDA argues that a smaller, weaker formal market ultimately leads to lower tax collection. In contrast, a 5% GST rate, according to industry estimates, would revive formal milk volumes by at least 20% and increase tax revenues by 22% year-on-year.

“By lowering the GST, you expand the tax net organically,” said Aftab. “More people stay within the formal economy, which means more compliance, more documentation, and ultimately more revenue for the government.”

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International Comparison: How Does Pakistan Stack Up?

Globally, dairy products are often exempt from VAT or taxed minimally due to their status as essential food items. In many countries, including India, milk is either zero-rated or taxed at a concessional rate below 5%. Pakistan’s current 18% GST stands in stark contrast, effectively making it one of the highest taxed milk markets in the world.

This global disconnect undermines Pakistan’s competitiveness in regional trade and puts an undue burden on its citizens—particularly those from low-income groups who rely on affordable, safe milk for daily nutrition.

Impact on Nutrition and Public Health

Pakistan is already facing a malnutrition crisis. According to the National Nutrition Survey, 40% of children under five are stunted, and 18% suffer from wasting. Milk is one of the most accessible sources of calcium, protein, and essential vitamins for growing children.

“With formal milk becoming unaffordable due to GST, families are forced to either reduce consumption or switch to unregulated sources, which may not meet safety standards,” said Dr. Amin. “We are essentially compromising the health of the next generation.”

Sustainability and Quality: Formal Sector Standards at Risk

The formal dairy sector in Pakistan adheres to stringent quality and safety standards, including pasteurization, cold chain logistics, and laboratory testing. These standards not only ensure consumer safety but also reduce food waste and improve overall nutritional outcomes.Collapse

The shift toward the informal sector risks unraveling years of progress in food safety. It also discourages innovation in sustainable dairy practices, such as biodegradable packaging, animal welfare standards, and carbon-neutral farming—initiatives that many formal producers were beginning to implement Collapse.

Industry Recommendations: A Path to Revival

In their official statement, the PDA presented a multi-point policy proposal to the government:

1. Reduce GST on milk from 18% to 5% – to ease consumer burden and stabilize the formal market.Collapse

2. Reintroduce zero-rating for essential nutritional products like infant formula and powdered milk – to protect vulnerable populations Collapse.

3. Provide temporary subsidies or support to dairy farmers transitioning back to formal markets – to prevent a permanent collapse.Collapse

4. Launch public awareness campaigns on the risks of informal milk consumption – to encourage safe consumer choices.Collapse

5. Engage in industry-government dialogue for long-term dairy policy planning – to align economic and health goals.Collapse

Government Response: Awaiting Action

So far, there has been no formal response from the Ministry of Finance or the Federal Board of Revenue regarding PDA’s demands. However, the dairy sector remains hopeful that the issue will be addressed in the forthcoming federal budget discussions Collapse.

“We believe the government understands that this is not just an industry problem—it’s a national nutrition and economic crisis,” said PDA Chairman Zaheer. “This is the time for corrective action before the damage becomes irreversible.”

Consumer Sentiment: A Nation Pays the Price

Public opinion is increasingly sympathetic to the dairy industry’s concerns. Households across Pakistan have reported sharp increases in milk prices and limited availability of branded milk products. For many, packaged milk was a reliable, hygienic alternative to open milk, especially in urban areas Collapse.

“Now I can’t afford packaged milk for my children,” said Asma, a mother of three in Rawalpindi. “I’ve gone back to buying loose milk from the vendor. But I worry every day about whether it’s clean or safe.”

Globally, dairy products are often exempt from VAT or taxed minimally due to their status as essential food items. In many countries, including India, milk is either zero-rated or taxed at a concessional rate below 5%. Pakistan’s current 18% GST stands in stark contrast, effectively making it one of the highest taxed milk markets in the world.

This global disconnect undermines Pakistan’s competitiveness in regional trade and puts an undue burden on its citizens—particularly those from low-income groups who rely on affordable, safe milk for daily nutrition. Collapsevvvvvvvvv

Impact on Nutrition and Public Health

Pakistan is already facing a malnutrition crisis. According to the National Nutrition Survey, 40% of children under five are stunted, and 18% suffer from wasting. Milk is one of the most accessible sources of calcium, protein, and essential vitamins for growing children. Collapse

“With formal milk becoming unaffordable due to GST, families are forced to either reduce consumption or switch to unregulated sources, which may not meet safety standards,” said Dr. Amin. “We are essentially compromising the health of the next generation.” Collapse

Sustainability and Quality: Formal Sector Standards at Risk

The formal dairy sector in Pakistan adheres to stringent quality and safety standards, including pasteurization, cold chain logistics, and laboratory testing. These standards not only ensure consumer safety but also reduce food waste and improve overall nutritional outcomes.Collapse

The shift toward the informal sector risks unraveling years of progress in food safety. It also discourages innovation in sustainable dairy practices, such as biodegradable packaging, animal welfare standards, and carbon-neutral farming—initiatives that many formal producers were beginning to implement Collapse.

Industry Recommendations: A Path to Revival

In their official statement, the PDA presented a multi-point policy proposal to the government:

1. Reduce GST on milk from 18% to 5% – to ease consumer burden and stabilize the formal market.Collapse

2. Reintroduce zero-rating for essential nutritional products like infant formula and powdered milk – to protect vulnerable populations Collapse.

3. Provide temporary subsidies or support to dairy farmers transitioning back to formal markets – to prevent a permanent collapse.Collapse

4. Launch public awareness campaigns on the risks of informal milk consumption – to encourage safe consumer choices.Collapse

5. Engage in industry-government dialogue for long-term dairy policy planning – to align economic and health goals.Collapse

Government Response: Awaiting Action

So far, there has been no formal response from the Ministry of Finance or the Federal Board of Revenue regarding PDA’s demands. However, the dairy sector remains hopeful that the issue will be addressed in the forthcoming federal budget discussions Collapse.

“We believe the government understands that this is not just an industry problem—it’s a national nutrition and economic crisis,” said PDA Chairman Zaheer. “This is the time for corrective action before the damage becomes irreversible.” Collapse

Consumer Sentiment: A Nation Pays the Price

Public opinion is increasingly sympathetic to the dairy industry’s concerns. Households across Pakistan have reported sharp increases in milk prices and limited availability of branded milk products. For many, packaged milk was a reliable, hygienic alternative to open milk, especially in urban areas Collapse.

“Now I can’t afford packaged milk for my children,” said Asma, a mother of three in Rawalpindi. “I’ve gone back to buying loose milk from the vendor. But I worry every day about whether it’s clean or safe.”

A Crossroads for Pakistan’s Dairy Future

The Pakistan Dairy Association’s urgent appeal for GST relief is more than just a business concern—it is a broader call to protect a vital part of the national economy and public health infrastructure Collapse.

Unless decisive action is taken soon, Pakistan risks allowing its formal dairy sector to wither while the informal, unregulated market thrives unchecked. This would be a step backward for food safety, employment, and fiscal responsibility Collapse.

A Crossroads for Pakistan’s Dairy Future

The Pakistan Dairy Association’s urgent appeal for GST relief is more than just a business concern—it is a broader call to protect a vital part of the national economy and public health infrastructure Collapse.

Unless decisive action is taken soon, Pakistan risks allowing its formal dairy sector to wither while the informal, unregulated market thrives unchecked. This would be a step backward for food safety, employment, and fiscal responsibility Collapse.

Reducing the GST to 5% is not a loss to the state but an investment in stability, public health, and long-term tax sustainability. The clock is ticking, and the fate of one of Pakistan’s most critical industries hangs in the balance.