Taxing middlemen will hurt small farmers: analysts

The Federal Board of Revenue's (FBR) decision to tax the middlemen (Arthi) engaged in agri-trading would hurt the small farmers as the middlemen would pass the burden onto the farmers, a survey carried out by Business Recorder revealed.
Farmers and analysts argue that the government is expecting to collect about Rs 50 billion through taxing the middlemen, but the tax machinery would be able to collect only Rs 10 billion under this head and the remaining amount might not be collected due to revenue leakages and loopholes in the taxation system.
Chairman Agri-Forum Pakistan Ibrahim Mughal said that the imposition of 10 percent withholding tax (WHT) on gross commission income of middlemen and 1.5 percent WHT on the sale of certified seeds of cotton, rice and edible oil through middleman would not only open the floodgates to food inflation but would also compromise the liquidity of farmers as the middlemen would deduct the tax from farmers and pass it on to end consumers.
According to the FBR decision, WHT is deductible at the rate of 1.5 percent on sale of cotton seed, rice and edible oils, if the sale is made by a person other than a grower/cultivator directly. In case sale of seed cotton or other agricultural produce is made by a grower/cultivator through a commission agent, then withholding tax is collectible at the rate of 10 percent of the gross commission income of the commission agent.
Agriculturists have accused the government of adopting policies that would only hurt the small and mid-level farmers and claim that these measures are being taken to protect the large land owners who should be paying income tax on agriculture. End consumers would have to bear the total burden of the price hike, whereas edible items like flour, ghee, sugar and pulses are already out of the reach of the middle class and lower-middle class, Mughal maintained.
A former high-official of the Federal Agriculture Ministry talking on the issue said that he was unable to understand the rationale behind the government's recent move regarding the imposition of Withholding Tax on middlemen in the absence of any proper monitoring mechanism.
He said that Pakistani farmers are purchasing different fertilisers at much higher rates as compared to India. At present DAP fertiliser in India is available at Rs 800 per 50 kg bag, while in Pakistan it is being sold at Rs 4,000, urea fertiliser is available in India at Rs 550 per 50 kg bag which is being sold at Rs 1,200 in Pakistan, the official added.
He said that the Indian government was providing cheap electricity to farmers while Pakistani farmers are purchasing electricity at commercial rates. In agriculture sector over one million tube-wells are being used by the farmers for irrigation purposes while the government is increasing diesel price on fortnightly basis, which puts severe pressure on farmers.
He was of the view that the recent steps taken by the authorities would force the farmers to stop cultivation which would have severe impact on economic growth. Pakistan annually requires about one million tons of certified wheat seed, while only 0.2 percent seed is being produced in the country out of which only 0.1 million tons is purchased by the farmers because of its high price. A year ago urea fertiliser per 50 kg bag was available at Rs 750, which now costs Rs 1,200, DAP fertiliser bag was available at Rs 2,000 which has jumped to Rs 4,000, certified seed of Irri-6 paddy was available at Rs 80 per 20 kg which at present costs Rs 1,200, certified cotton seed price has jumped from Rs 30 per kg to Rs 40 per kg, he said.
Terming the new measures as indirect tax on the agricultural sector, Tariq Mehmood of Pakistan Kissan Ittehad talking to Business Recorder said that the government was bent upon destroying all the productive sectors of the economy and after imposing 17 percent General Sales Tax on agriculture inputs including pesticides, fertiliser and tractors through presidential ordinance on March 15, 2011, the new move will have negative impact on the overall agriculture economy.
"In March government imposed over Rs 80 billion taxes on agriculture sector in the form of GST and advance taxes," he said adding that around 80,000 tractors are being purchased by the growers per annum and after the imposition of 17 percent sales tax, they will have to pay a total of Rs 8 billion annually more than the earlier price. "Though we always talk about bio-technology yet the fact is that we have not made any effort in this direction. So far, only a few multi-national companies produce hybrid maize and they collude to set the price. In addition they have refused to transfer the technology to local companies. The bitter truth is that being an agriculturist country we are still importing hybrid maize," Mehmood maintained.