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Dairy industry urges government to reconsider VAT hike for sustained growth

February 13, Colombo (LNW): Sri Lanka’s dairy industry stakeholders are urging the government to reconsider its decision to increase the Value Added Tax (VAT), cautioning that such a move could have severe repercussions on the dairy sector and the nation’s overall health.

The All Island Dairy Association (AIDA) emphasised that the VAT hike, aimed at broadening the tax base, could negatively impact the dairy sector, a crucial contributor to the country’s GDP and rural livelihoods.

AIDA highlighted the precarious situation facing the dairy sector, which saw significant growth in milk production from 2017 to 2021 but now faces profitability threats due to the VAT increase.

Previously, fresh milk production and related products were VAT-exempt, supporting around 300,000 small-scale farmers and over two million dependents.

However, the proposed VAT hike could exacerbate the sector’s vulnerability, leading to declines in production and income losses for farmers, they pointed out.

Over the past decade, the cost of milk production surged by 174 per cent due to rising input costs, with retail prices increasing by 168 per cent.

The additional burden of increased VAT could further strain the affordability of dairy products, potentially affecting public health, particularly among vulnerable groups.

While not entirely against the VAT, AIDA suggests a gradual rollout of the increase with support measures to allow the sector to adjust while ensuring relief for essential inputs.

Recommendations include facilitating the import of feed ingredients to reduce production costs and promoting value-added dairy product production to enhance profitability.

AIDA emphasises proactive monitoring, consumer awareness initiatives, and policy adjustments to mitigate the impact of the VAT hike. The association also calls for the Animal Production and Health Department’s involvement in tracking the VAT’s impact and conducting consumer awareness campaigns.

AIDA’s members play a significant role in Sri Lanka’s dairy sector, contributing to the processing of nearly 60 percent of the nation’s daily milk production.

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