Tax incentive misuse in tribal areas sparks uproar

Industrialists claim concessions are damaging ghee, edible oil, steel, and juice industries

ISLAMABAD:

Representatives from various sectors have expressed concerns over the misuse of the tax incentive package for erstwhile Federally Administered Tribal Areas (FATA), claiming that the concessions announced in 2019 were damaging the ghee, edible oil, and steel industries across the country. At a news conference in Islamabad on Monday, key players in these sectors demanded the government abolish the exemptions awarded to the industry in former FATA and the Provincially Administered Tribal Areas (PATA) for five years. Sheikh Abdul Razzak, Chairman of the Pakistan Vanaspati Manufacturers Association (PVMA), highlighted that the concessions granted to FATA included complete exemptions from income tax, sales tax (both at local and import stages), customs duty (at import stages on plant and machinery), turnover tax exemption from annual tax returns, and exemption from withholding income tax on local supplies. “As a result, there is a difference of around 27% between the units in former FATA and the rest of the country,” Razzak added.

He informed that with a total population of around 6.25 million, the requirement of ghee and edible oil in former FATA and PATA should be around 52,000 tonnes during Jan-May 2024 based on per capita consumption of 20kgs annually. “But the ghee units in these exempted areas have already imported 180,000 tonnes of edible oil including palm oil in five months,” he said, adding, “This clearly shows that the ghee and oil mills of exempted areas have been selling their produce in mainland Pakistan even up to Punjab and parts of Sindh during the past five years.”

Similar issues were expressed by the steel sector, with tax exemptions amounting to around Rs50,000 per tonne for steel products. Khurram Mughal, CEO of Mughal Steels, and Khawar Suddiquie of Aisha Steels said that most of the steel units working in Hattar industrial estate, Gadoon industrial estate, and Hayatabad industrial estate have shut down, with 16 steel units closed in Hattar industrial estate, Khyber-Pakhtunkhwa, and eight in Islamabad. Mughal said China-Pakistan Economic Corridor (CPEC)-related steel units, which Chinese investors had planned to set up at Rashakai Economic Zone, have now been shelved and discarded due to FATA/PATA tax issues.

Meanwhile, in a statement, the Fruit Juice Council has asked the government to abolish the 20% Federal Excise Duty plus 18% GST on packaged fruit juices in the forthcoming Federal Budget 2024-25, as it is directly impacting the rural economy of fruit farmers in Pakistan, especially Punjab. FJC representative Aatekah Mir Khan said, “The sudden imposition of 20% FED on juices in addition to 18% GST in the Budget 2023-24 resulted in a drop of industry volumes by 41%.”

The FJC includes CitroPak, Haleeb, Nestlé, PepsiCo, Popular, Shezan, and TetraPak, with an annual turnover of about Rs60 billion in 2022, employing more than 10,000 employees.