Is a Glass of Milk Now Considered a Luxury in Pakistan?

If the government classifies it as a “luxury” and imposes tax accordingly, this is not simply a matter of fiscal policy. It is a deep injustice.

For decades, milk in Pakistan has been recognized as an essential food item, and for that reason, it remained exempt from General Sales Tax (GST) until recently. According to official documents from the Federal Board of Revenue (FBR) and past finance laws, packaged milk was treated as a tax exempt commodity until 2023.

Pakistan’s packaged milk market comprises three major types, each with distinct processing methods and shelf lives:

1. Pasteurized Milk

This is gently heated to kill harmful bacteria while preserving its nutritional value. It must be refrigerated and has a short shelf life.

🟦 Examples: Nurpur, Adams, Prema

2. UHT Milk (Ultra High Temperature)

Heated at extremely high temperatures for a few seconds, UHT milk becomes microbe free and can last for months without refrigeration before opening.

🟦 Examples: Olper’s, Nestlé Milkpak, Dayfresh, Dairy Omung

3. Shelf Stable Milk

This broader category includes UHT milk as well as evaporated and powdered milk varieties that can be stored for extended periods.

🟦 Examples: Milkpak Cream, Millac, Everyday (powdered)

All three types were officially categorized by the FBR as exempt goods, based on their nutritional importance. This kept the sales tax at zero percent, supporting affordability and public health.

But in a sudden reversal during the 2024 25 fiscal year, the government imposed a flat 18 percent GST on all types of packaged milk. The result was immediate: prices surged by 50 rupees per liter, effectively rebranding milk as a luxury product rather than a nutritional necessity.

Globally, institutions such as the World Health Organization (WHO) recognize milk as a cornerstone of health. It is rich in calcium, vitamin D, potassium, phosphorus, zinc, and high quality proteins. WHO’s Complementary Feeding guidelines, the United States’ MyPlate.gov, and various international nutrition studies affirm milk’s role in strengthening bones, supporting physical development, and boosting immunity for people of all ages.

Most developed countries reflect this understanding in their tax codes. Milk is either zero rated or lightly taxed. For example:

• In the United States, there is no federal tax on milk, though some states apply limited local taxes.

• In the United Kingdom, milk is zero rated for VAT.

• Germany and France apply reduced VAT rates of 7 percent and 5.5 percent, respectively.

• India fully exempts fresh milk from GST. Processed dairy products carry only a 5 percent GST.

• Australia treats milk and other basic food items as GST exempt.

• Canada and Bangladesh impose no GST or VAT on milk.

• Sri Lanka adjusts its policies periodically, but generally applies low or zero taxation on milk.

In Saudi Arabia, VAT on milk ranges from 5 to 15 percent, but the government often offers producer subsidies or targeted exemptions to minimize consumer burden. This smart strategy ensures steady tax revenue while keeping dairy affordable for the public. It has been hailed by economists as a balanced and replicable model.

In contrast, Pakistan’s sudden imposition of 18 percent GST on milk stands out as a statistical anomaly in global fiscal policy. It diverges sharply from international norms and undermines basic food security. Instead of encouraging healthy consumption, it forces people away from regulated, pasteurized milk and back toward unregulated, informal sources, many of which are unsafe and unhygienic.

On June 24, 2025, the Pakistan Dairy Association (PDA) held a press conference condemning the tax policy as both harmful and unsustainable. The panel included PDA Chairman Usman Zaheer Ahmed, CEO Dr. Shehzad Amin, Tetra Pak’s Noor Aftab, FrieslandCampina’s Imran Hussain and Dr. Muhammad Nasir, and Nestlé Pakistan’s Atika Mir Khan. Together, they outlined the damage: a 20 percent drop in milk sales, closure of 500 milk collection centers, and the loss of 1.3 billion rupees in annual investments.

The PDA experts emphasized that this policy contradicts global best practices. As a result of the GST hike, 35 percent of dairy farmers have shifted back to the informal market. This has stalled investments, disrupted product innovation, and fractured Pakistan’s dairy value chain.

Since the GST was imposed, the price of packaged milk has risen from Rs. 280 to Rs. 350 per liter, placing an undue burden on lower income families. According to the Nielsen Consumer Index, 66 percent of Pakistan’s population earns less than Rs. 50,000 per month. These households are now being pushed toward unsafe and unregulated loose milk. Public health experts have warned that this shift is deeply dangerous in terms of hygiene, nutrition, and disease exposure.

Pakistan’s regulated dairy sector is now facing an existential crisis. Sales are down by 20 percent, 1.3 billion rupees in investments have been suspended, and over 500 field operations have closed. Processing facilities are running at half capacity, new product development has stalled, and export potential once valued at 30 billion dollars annually is now uncertain.

According to the PDA, the 18 percent GST has led to the unchecked growth of the informal dairy economy, which is now generating more than Rs. 1,319 billion annually — revenue that bypasses formal taxation entirely. This not only deprives the state of tax income, but also exposes millions to potentially unsafe milk. The association has urged the government to reduce GST to 5 percent, which could lower prices by Rs. 50 per liter, revive industrial productivity, and restore revenue through broader compliance.

Following this appeal, the government must adopt a balanced, transparent, and citizen focused policy stance.

Packaged milk, whether pasteurized or UHT treated, is a scientifically proven nutritional necessity. Taxing it at an excessive rate forces consumers toward unsafe alternatives, undermines farmer incomes, threatens food security, and erodes public trust in policy decisions.

If the objective of this tax is merely revenue collection, then the greater question becomes: At what cost? As formal dairy sales decline, facilities shut down, and consumers move to informal suppliers, the government earns less, public health deteriorates, and rural economies suffer.

Across the globe, milk is taxed between zero and seven percent, if at all. Pakistan’s 18 percent GST is not just a policy outlier — it is a fiscal misjudgment that defies global benchmarks and must be immediately reviewed.

The solution proposed by the Pakistan Dairy Association, a reduction to 5 percent GST, offers a practical path forward. It would ensure price relief, reenergize the dairy industry, and achieve revenue neutrality within three years. It is a win for consumers, producers, and the state alike.

This is not just a tax issue. It is a question of nutrition, equity, and national responsibility. And the government must treat it with the seriousness it deserves.

▫Authored for the public economics and policy section of SyedShayan.com