ECC slams FBR for overcharging tax on food subsidy

Members say subsidy is not income, govt depts should resolve disputes promptly

ISLAMABAD:

Economic managers of the country, while expressing grave concern, have lashed out at the Federal Board of Revenue (FBR) for overcharging turnover tax on the subsidy being given on food items at utility stores.

Sources told The Express Tribune that the matter of turnover tax on subsidy was raised in a recent meeting of the Economic Coordination Committee (ECC), which emphasised that government departments should resolve inter-departmental disputes promptly.

ECC members arrived at a consensus that the FBR had been overreaching while levying tax on subsidy, which was not an income. The ECC authorised committee chairman to decide on the matter after hearing viewpoints of both departments.

The committee also aired concern about wheat procurement by utility stores at prices higher than the prevailing market rates. It was explained that under the current arrangement, utility stores could only procure wheat from Pakistan Agricultural Storage and Services Corporation (Passco) and prices had increased due to the addition of incidental charges by the supplier.

The ECC emphasised that Utility Stores Corporation (USC) should adhere to government timelines and guidelines in the procurement process. The government has earmarked Rs60 billion in the budget for fiscal year 2024-25 to provide relief to the poor through utility stores. Households falling within the poverty score of 40, according to the Benazir Income Support Programme (BISP) poverty survey, will get the relief on five essential commodities.

It was highlighted that in the previous year, beneficiaries were targeted up to Proxy Means Test (PMT) 30 but this year the target group was extended to include around 60% of the population.

Households will be provided relief on presentation of their Computerised National Identity Cards (CNICs) along with biometric verification to prevent misuse of the relief package. USC has an automated platform ensuring end-to-end visibility of each transaction.

While discussing the budget allocation of Rs590 billion for the BISP, the committee reiterated that the targeted subsidy for the poor should continue.

However, it was not convinced to provide subsidy on Sella and Basmati rice as those were superior varieties and were not considered priority items for the poor households.

The Industries and Production Division briefed the ECC that USC had been providing five essential items at subsidised rates since January 2020 under the Prime Minister's Relief Package.

For FY24, the federal cabinet had approved Rs35 billion under the targeted subsidy model, which had been successfully implemented by utility stores.

Next fiscal year, the government allocated Rs60 billion in budget under the Prime Minister's Relief Package and the Ramazan Relief Package through utility stores.

The Industries Division stressed that the subsidy was intended to provide relief to the poor segments of society, identified through the BISP data.

Five essential items were provided to the targeted population, up to PMT-40, at subsidised rates.

The subsidy per household was Rs2,734 per month for FY24, which was proposed to be increased to Rs3,650 per month for FY25, reflecting a rise of Rs916, or 25.07%.

The Industries Division submitted following proposals for ECC's consideration and approval.

It proposed that the PM Relief Package for FY25 should continue for 10 months – from August 1, 2024 to June 30, 2025 (excluding Ramazan), with instructions to the Finance Division to release funds every month.

It also proposed the continuation of relief package beyond June 2024 to the end of July 2024, based on utilisation of the subsidy and pending approval of the proposed package.

It sought approval of a turnover tax of 1.25% on the subsidy to be paid to the FBR from the budgeted subsidy amount for FY25.