The Finance Bill 2021-22 has proposed an increase in three taxes related to the flour milling industry, the implementation of which is likely to increase the price of a 20kg bag of flour by Rs97.
The one per cent rebate on annual sales of flour mills has been abolished, the sales tax on bran sales has been increased by 10% and the sales tax on import of machinery used for making flour has been increased by 7%.
The increase in turnover tax is expected to increase the price of a 20kg bag by Rs30 while the increase in sales tax on bran is expected to increase the price of each 20kg bag of flour by Rs67.
Read: Flour prices likely to surge after wheat scarcity
In a letter to Minister for Finance Shaukat Tarin, Flour Mills Association Chairman Asim Raza has described the tax hike as the FBR's error and requested him to maintain the current rate of taxes. The Flour Mills Association in Lahore is also expected to hold a press conference tomorrow (Tuesday).
Raza has told Tarin that at present the turnover tax imposed on the flour milling industry has been included in the lowest rate of the schedule under which 0.25% turnover tax is applicable on mills.
In the next financial year's budget, flour mills have been excluded from the lowest rate schedule and will now be subject to 1.25% turnover tax. If the new rate of turnover tax is implemented, the price of a 20kg flour bag may increase by Rs30 from July 1.
Raza told The Express Tribune that the current sales tax concession rate on import of machinery used in flour making is 10% which is being increased to 17% in the next financial year.
At present a large number of new flour mills are set up across the country in which modern machinery is being imported from Italy, Germany, Switzerland and Turkey to improve the quality of flour. The imported machinery consumes very little electricity, time and water and thus helps save resources.
An increase in taxes will significantly increase the cost of imported machines by millions of rupees. At present, 65% of the total cost of setting up mills consists of purchase and import of modern machinery.
In the proposed finance bill, the sales tax rate on sale of bran has been increased from 7% to 17% which will have a direct impact on the price of flour. A year and a half ago, the FBR had also increased the tax on bran, but later the then FBR chairman, Shabbar Zaidi, called it a mistake and reduced the tax rate.
Read more: ‘Flour crisis looming as wheat harvesting starts’
He had assured the industry that the tax would be abolished in the next financial year and the FBR had stopped collecting 7% tax from mills across the country.
At present, flour mills produce about 19kg of bran out of 100kg of wheat, with a current market price of Rs1,400 per 34kg bag. Due to separate sales of bran, the price of flour is kept low for the consumers.
In particular, the food department takes into account the price of bran while determining the official price of flour in consultation with flour mills. An increase in the sales tax on bran to 17% is expected to increase the 20kg bag of flour by Rs60 to Rs67.
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