FBR blocks proposal to slash withholding tax on wheat import

Says initiative will hit revenue collection, cause titanic loss to exchequer.

ISLAMABAD: The Federal Board of Revenue (FBR) blocked a wheat import proposal initiated by the Ministry of National Food Security to slash withholding tax on the import of wheat from 6% to 1%.

The Ministry of National Food Security had proposed the cut on the back of low wheat imports, saying that this could lead to a food-security situation in the country, as well as a spike in food prices.

According to the documents available with The Express Tribune, the food ministry tabled a summary before a meeting of the Economic Coordination Committee (ECC) held on July 30, suggesting that withholding tax on wheat imports should be reduced from 6% to 1%.

However, the meeting observed that the FBR was against the proposal on grounds that the proposed reduction in withholding tax will only benefit a specific class of the private sector and will entail a significant loss to the national exchequer due to the quantity of wheat to be imported being unspecified. Following the resistance of the FBR, the ECC deferred the proposal of reducing withholding tax on wheat imports.

The meeting was informed that the procurement price for wheat was fixed at Rs1,200 per 40 kilogrammes (kg) for the current food year from May 1, 2013 to April 30, 2014 with a procurement target of 7.91 million tons. However, due to aggressive buying by the private sector apart from expectations of lower production of wheat this year, all public procurement agencies could collectively achieve only 71% of their allocated procurement target.

The meeting was informed that the carryover stocks of provincial government and Pakistan Agricultural Storage and Services Corporation (Passco) stood at 1.618 million tons, therefore total public sector wheat stock position was estimated at 7.56 million tons. The last year releases of wheat were reported at 7.1 million tons. This year’s wheat requirement is estimated to be around 7.5 million tons.

It was pointed out that the stock position suggests that the wheat supply position to the public will remain very tight throughout the year. The price trend in Karachi and Balochistan suggests that the private sector is allegedly hoarding wheat to create artificial shortage for windfall gains. Releases of wheat by the government will start from September 2013, and till that time sufficient supply of wheat needs to be assured by the private sector.

It was further pointed out that since the international prices of wheat are on the decline and hover around $285 to $295 per ton in Karachi, therefore it will be wiser to import wheat as the prices historically go higher in the last quarter of the year. It was also suggested that instead of importing wheat itself, the government should encourage the private sector to import wheat of the prescribed quality. However, the private sector may shy away from importing wheat in sufficient quality because of increase in withholding tax to 6% in the Federal Budget 2013-14. Thus, it was accordingly proposed that the withholding tax should be reduced, to which the economic decision making body did not give the nod.

Published in The Express Tribune, August 9^th, 2013.

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