High taxes add to Punjab milk processing units' woes

Punjab, one of the top milk-producing states of India, has been losing its edge over other states due to the unfavourable tax structure.

The milk processing units in the states have to pay a purchase tax of 4 per cent on purchase of milk and value added tax of 12.5 per cent on the milk processing.

According to Milk Plants Association President MM Verma, most of the milk producing states in India levy 4 per cent VAT as compared to 12.5 per cent in Punjab.

"This has not only undermined the milk processing units but the government revenue also as many milk processors in Punjab buy milk from the neighbouring states to avoid purchase tax. Because of the tax structure, many regional private players like Wonder Milk, Asia Lactose, Geo Dairy (all from Ludhiana), Sunrose Milk Processing near Kharar, Prabhat Dairy near Ahmedgarh and Sangrur Dairy closed down in the past few years.

"Despite consistent allocation of funds every year in annual budgets for the revival and modernisation of dairy sector in Punjab the ground realities have remained the same," he added.

The state has 42 milk plants including 11 owned by the Punjab Milk Federation. The larger players have the technology to process surplus milk and the infrastructure for the storage.

The medium scale players who do not have the technology to process and offload surplus milk according to the market demand are at the receiving end. The trend has also effected the units supplying multi-layered film used only to make milk pouches.

Many of the units, which closed operations, were defaulters of the multi-layered film producers. One litre of milk is available for Rs 21 in Punjab despite that profit margins are declining.

Some units are also contemplating converting their premises into shopping malls and multiplexes by tieing up with real estate developers.

SS Virdi of Anesthetic Gases Private Ltd told Business Standard that large players like Milkfed and Markfed source their packaging material on the basis of tender that is not very transparent.

"If I had not diversified my business it would have been difficult to sustain as no steps have been taken to promote medium scale player in this business," he added.