OICCI Recommends Withholding Tax Exemption for Milk

OICCI Recommends Withholding Tax Exemption for Milk

Karachi, May 22, 2024 – The Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended exempting milk from withholding tax in its proposals for the 2024-25 budget.

The OICCI’s proposal aims to ease the tax burden on milk, whether purchased directly from farmers or through commission agents and resellers.

In addition to the withholding tax exemption, the OICCI suggests implementing a mechanism to issue sales tax refunds for the dairy industry. Since July and September 2021, 100% recoupment of input taxes paid on the sale of milk and fat-filled milk has been allowed. The OICCI proposes applying a pre-defined mechanism, such as the FASTER system, to dairy companies, ensuring that refunds are processed automatically within 15 days of filing monthly sales tax returns. Given that most taxable purchases made by dairy companies come from reputed corporate taxpayers, the verification of input taxes paid would be swift and efficient.

The current tax regime established by the Finance Act, 2021, and the Tax Laws (Third Amendment) Ordinance, 2021, subjects liquid milk and fat-filled milk to a 0% sales tax. The OICCI recommends that this regime continue, maintaining the zero percent sales tax on these essential dairy products.

However, the Finance Supplementary Act, 2022, introduced standard sales tax on various dairy products such as flavored milk (HS Code 0402.9900), yogurt (HS Code 04.03), cheese (HS Code 04.06), butter (HS Code 04.05), cream (HS Codes 04.01, 04.02), and desi ghee (HS Code 0405.9000) sold in retail packaging under a brand name. The OICCI suggests re-transposing these products to the 8th Schedule of the Sales Tax Act, 1990, to continue the reduced rate of 10%.

Furthermore, the OICCI highlights the disparity in tax rates on raw materials used by the dairy sector. Currently, the tax on major imported raw materials related to the dairy sector is 5.5%, whereas various raw materials used in other industries are already subject to a reduced tax rate of 2%. The OICCI recommends that raw materials imported for in-house consumption by the dairy industry should be subject to a revised advance tax rate of 2% at the import stage. This adjustment would bring parity and reduce the financial burden on the dairy sector, fostering growth and sustainability.

The OICCI’s proposals reflect a comprehensive approach to supporting the dairy industry by alleviating tax pressures and ensuring a smoother process for sales tax refunds. By implementing these recommendations, the government can enhance the dairy sector’s viability, allowing it to continue providing essential nutrition to the population while maintaining fair and equitable tax practices.