Incapable of mending its own house, the Federal Board of Revenue (FBR) is now looking to find a new prey in order to meet its budgetary target and, according to the top taxman’s statement on Tuesday, it has already targeted the dairy sector for a ‘change in the tax structure’ from July onwards.
The move is estimated to increase the price of packaged milk by at least Rs8 per litre.
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“The FBR will propose that the zero-rating structure of the dairy sector may be converted to an exempted sector,” said Mohammad Nisar, the FBR chairman, while speaking at a meeting of the National Assembly Standing Committee on Finance.
While this may be a move to boost tax revenues and aimed at getting it from businesses, the final ‘cost’ would be paid by consumers.
Milkmen, who sell fresh milk, would now have the pretext of raising their prices as well despite having very little to do with the formal sector.
Fresh milk constitutes roughly 7% of the total consumer price index (CPI) basket and any change in price would fuel inflation.
If the government accepts the FBR proposal to abolish zero-rating facility, the milk producers will no longer be entitled to claim refunds for the taxes they pay while procuring inputs.
This would be, if carried all the way through, the second change in the tax structure of the dairy industry in the last one year alone. In the last budget, the federal government had imposed 10% sales tax on yogurt, cheese, butter, cream, desi ghee, whey and cream. Finance Minister Ishaq Dar had claimed that the rich class consumes these items.
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The FBR currently owes Rs20 billion sales tax refunds to the dairy industry, former chairman of the Pakistan Dairy Association (PDA) Anjum Saleem informed the standing committee.
Granting tax exemption status to the dairy industry would result in the discontinuation of tax refunds facility and will inflate milk price by Rs8 per litre, according to industry people.
The move to change the tax structure of the dairy sector would be tantamount to punishing the milk consumers for the inefficiencies of the FBR that is using refunds to inflate its revenues.
On the other side, the PDA pushed the FBR to continue the sector’s zero rating facility and abolish the 10% tax that the government imposed in the last budget.
“These dairy items are used by the high-end consumers and we cannot create more holy cows by giving them special status,” FBR chairman responded to PDA’s demands.
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He also brushed aside concerns over implications of change in tax structure on people’s dietary patterns. “The society is also affected by other things,” said the chairman.
However, Waqar Ahmad, head of corporate affairs of Nestle Pakistan, said that children use most of the these items.
Tax on imports
The Standing Committee recommended the government to lower the 6% rate of advance tax that it charges from commercial importers. The committee also proposed the government to end discriminatory treatment being meted out to the commercial importers of yarn.
Additionally, the committee proposed that the rates of withholding tax and value-added tax charged from the commercial importers should not be too high compared with the industrial importers. Currently, under Statutory Regulatory Order (SRO) 1125, the commercial importers pay 3% withholding tax on yarn import, which is only 1% in case of industrial importers.
Before 2013, the commercial and industrial importers were equally treated. After increase in rates, the share of yarn imported by commercial importers has come down to only 8% from pre-change level of 80%, indicating massive underhand deals.
The FBR chairman said that the government was not happy with collection from the textile sector under SRO 1125 and it was reviewing the option to bring changes in the SRO from July this year.
Karachi Chamber of Commerce and Industry demanded from the standing committee to investigate discrepancy of $4 billion between the imports figures reported by China and Pakistan. It has been suspected that money was going in the pockets of corrupt elements of the FBR.
Published in The Express Tribune, April 20th, 2016.
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