The government has announced to take back budget proposal to raise the sales tax on dairy products from 10% to 17%, senior Treasury officials told online newspaper.
Through the Finance Act of 2021, the government increased sales tax from 10 to 17 percent on cream, butter, yogurt, cheese, powdered milk, and bleached tea, etc. Now the government has decided to restore the reduced sales tax rate of 10 percent on dairy products from 2021 to 22.
In another important development, the government also decided to change the VAT exemption status for milk to zero.
The change in status from the zero exemption was a requirement of the dairy sector. At the conclusion of a meeting between Finance Minister Shaukat Tarin and the dairy sector in the Treasury Department on Friday, the government understood the problems of the dairy sector and decided to cut VAT rates on dairy products from 17 to 10 percent.
Previously, imposing a 17 percent sales tax on dairy products for 2021-22 would have an impact of more than Rs.5 billion on dairy revenues.
The 10 percent VAT applies to certain dairy products such as cream, butter, yogurt, cheese, powdered milk, and bleached tea, etc. In the budget (2021-22), the Federal Revenue Board (FBR) imposed a sales tax of 17 percent on dairy products.
The industry had expected the zero-rating facility to be restored, but the government had imposed a 17 percent sales tax on dairy products, which is having a serious impact on the healthcare sector.
In the budget year, the dairy sector asked the government for its support through positive action in the 2021-22 budget, including the zero-rating for the dairy sector.
The 2021-22 budget has had a negative impact of more than Rs on the dairy sector. 5 billion euros impact from an increase in sales tax from 10 percent to 17 percent. Over the three-year period, the revenue impact on the dairy sector would increase to Rs. 15 billion.