Seeking exemption: Agriculture lobby in parliament unites against taxes

Demand implies revenue loss worth Rs41 billion, sets precedent for other lobbies to demand exemptions.

ISLAMABAD:

In a move that has pitched Pakistan’s economic managers against the political leadership, the powerful agriculture lobby in parliament has upped the pressure on the government to withdraw tax on agriculture inputs.

The move is expected to lead to significant revenue loss, dash all hopes for revival of the suspended IMF programme and set a precedent for other powerful lobbies to pressurise the government for tax exemptions.

Parliamentarians related to the agriculture sector, irrespective of their party affiliations, are opposing the 17 per cent sales tax on some agricultural inputs by coalescing into a strong lobby inside and outside parliament.

The move has also rattled the finance ministry which is desperately trying to make politicians realise the implications of such a demand, sources told The Express Tribune.

The Federal Board of Revenue (FBR) has estimated tax receipts worth Rs41 billion, or 0.2 per cent of GDP, by netting sales of fertilisers, tractors and pesticides for the fiscal 2011-12

These taxes were levied on March 15, 2011, and enshrined in the new budget currently under discussion in parliament.

Knocking on PM’s door

A large number of parliamentarians gathered at the Prime Minister House on June 7, and  pressed their demand to withdraw sales tax on agricultural inputs on the pretext that “GST on agricultural inputs means a tax on means of production.”

Sources privy to backdoor negotiations said that a concerted attempt by this lobby then forced economic managers to knock on the doors of the Presidency.

Taxing agriculture has been a contentious issue in the country since independence and several attempts to bring this sector into the tax net have been foiled in the past.

Sources in the Prime Minister Secretariat and the finance ministry told The Express Tribune that landlords have warned the government either to withdraw tax on the sale of fertiliser, tractors and pesticides or be prepared to face a mass movement.

Pressure was first exerted during a meeting of ruling parliamentary parties, held at the Prime Minister House on June 7.

Two days later, other influential agriculturalists also joined the bandwagon to augment the already strong lobby.

Setting a precedent

Economic managers have warned the government that accepting this demand would not only lead to a huge revenue loss, but also serve as a catalyst for other powerful lobbies, such as industrialists, to table demands for exemptions.

The FBR has been assigned to collect Rs1,952 billion in taxes, including collection from the recently-netted sectors, and recovering taxes from evaders.

Surrendering to the agriculturists’ demand would imply an increase in the budget deficit to 4.2 per cent, 0.2 per cent higher than that proposed in the new fiscal framework.

Implications

The move would also vex the International Monetary Fund and other lenders that have pressed Pakistan to increase its abysmally low tax to GDP ratio, sources said.

Pakistan is already facing a massive drop in external loans and any such move may further dry up the finance pipeline, shifting the entire burden of budget financing on domestic borrowing, sources added.

It would also send economic managers scrambling for funds to retire foreign loans, they added.

Opponents of sales tax on agricultural inputs argue this would lead to significant increase in food prices.

The finance minister, however, argued that any increase in prices beyond a certain percentage is due to other factors such as hoarding and artificial shortages, sources said.

They added that some top level economic managers have threatened to resign if the government ignores their policies under political compulsions.

Front-runners against agriculture tax

The strong lobby of parliamentarians against taxes on agricultural inputs includes ministers and parliamentarians across party lines, including Minister for Kashmir Affairs and Northern Areas Mian Manzoor Ahmed Wattoo, Water and Power Minister Syed Naveed Qamar, Religious Affairs Minister Syed Khursheed Shah, Minister of State for Foreign Affairs Hina Rabbani Khar, MNAs Nadeem Afzal Chan, Tariq Mehmood Bajwa, Rana Muhammad Saeed Khan, Nazar Muhammad Gondal, Ch Sajjadul Hassan, Liaquat Ali Khan, Capt (Retd) Rai Ghulam Mujtaba Kharal, Syed Sumsam Ali Shah Bukhari, Mehmood Hayat Khan alias Tochi Khan, Mian Abdul Sattar, Jehangir Tareen, Javed Iqbal Warraich, Nazir Ahmed Bughio , Mir Ejaz Hussain Jakhrani, Syed Ghulam Mustafa Shah, Syed Amir Ali Shah, Nawab Muhammad Yousaf Talpur, Nawab Abdul Ghani Talpur and Roshanuddin Junejo.

Published in The Express Tribune, June 13^th, 2011.