FBR to tighten noose around flour mills evading Rs15b taxes

Almost all mills claim to directly or indirectly procure wheat from growers to evade 6.5% WHT

ISLAMABAD: Tax authorities are set to tighten the noose around wheat flour mills that are allegedly evading about Rs15 billion taxes a year by misusing a concession available only to the agriculture sector.

The move may set into panic the 915-membered Pakistan Flour Mills Association - the representative body of millers - which would likely create another problem for the government that has just come out of the property evaluation fiasco.

The flour mills are required to withhold 6.5% tax from non-filers of income tax returns on procurement of wheat from grain merchants that include intermediaries, according to tax officials.



The rate is 4.5% if the seller is a filer of income tax return.

If the wheat is purchased indirectly from growers through intermediaries, flour mills are not required to deduct the taxes. However, in this case, the mills have to produce a certificate that the wheat is procured from the growers.

Almost all mills are claiming that they are directly or indirectly procuring wheat from growers aimed at evading 6.5% withholding taxes, said the officials. However, their documentation is not sufficient to prove that this is the case, said the officials.

In most cases, the intermediaries buy the commodity from growers at less than the official support price and sell it at a later stage at their own rates. This practice has deprived growers from getting the right price of their commodity.

The representatives of the flour mills association were not available for comments.

There are over 915 registered flour mills. The average annual turnover of each mill is estimated at Rs300 million. On average, they are procuring roughly Rs275 billion worth of wheat annually.

The Pakistan Peoples’ Party government had exempted growers from the levy of withholding taxes, as under the constitution, the agriculture income is not a federal subject. Therefore, the sale receipts of agriculture produce are exempted from withholding taxes.

Earlier this year, the Large Taxpayer Unit (LTU) Islamabad had sent show cause notices to two flour mills for non-deduction of withholding taxes. This created ripples among the millers who not only threatened to go on strike ahead of Ramazan but also said that they would increase the flour price by Rs5 per kilogramme.

The matter was then reported to Special Assistant to the Prime Minister on Revenue Haroon Akthar Khan, who directed FBR officials to stop serving notices on flour millers and collect tax according to the practice prevailing for the last four years as the tax on turnover would push up prices of the staple.



He also asked owners of grinders to improve their documentation process in order to avoid tax problems in the future. The officials said the millers were unable to meet the documentation requirement.

The FBR also issued a fresh notification in June this year, explaining again that wheat growers were entitled to special withholding tax exemption.

The June notification was an explanation of the August 2011 FBR notification, as the authorities did not relax any condition.

The officials said that if authorities enforced the law in its true spirit, millers would surely retaliate. They said only large flour mills of Islamabad and Rawalpindi region were evading roughly Rs3 billion taxes annually.

According to some stakeholders, the 6.5% withholding tax rate was too high for the commission agents and intermediaries. They said one option was to lower the rates in the range of 2%. However, for that, the government will have to issue a Presidential Ordinance, as the FBR has no powers to change tax rates through Statutory Regulatory Orders (SROs)

Published in The Express Tribune, August 7^th, 2016.

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