Sales tax on agriculture sector: experts fear decline in GDP growth

The imposition of 17 percent sales tax on agricultural inputs will add to the troubles of the government as the overall contribution of agriculture sector in GDP growth may decline by 2-3 percent. Sources told Business Recorder that the growers would suffer Rs 70-80 billion losses as a consequence of the government's decision to impose 17 percent sales tax on agricultural inputs which would jack up the prices of a number of agricultural inputs.
According to agricultural experts the tax would affect the overall agricultural productivity of Pakistan. The 17 percent sales tax on agricultural inputs including fertiliser, pesticides, tractors and other inputs would cost the poor growers heavily, analysts maintain.
While talking to Business Recorder, Chairman Agri-Forum Pakistan, Ibrahim Mughal, said that the decision will force the agricultural sector to pay a heavy price for the government's flawed policies. "The government has decided to impose 17 percent sales tax on fertilisers, tractors and pesticides which is inexplicable. The present leadership of Pakistan has put the country on a path of destruction and starvation".
While giving detailed information about how the agriculture sector will suffer, he said "About 80,000 tractors are being purchased by the growers per annum and after the imposition of sales tax, they will have to pay Rs 8 billion annually more than before. An amount of Rs 300 billion was being spent to purchase fertilisers each year but imposition of tax will make the growers pay additional Rs 50-55 billion for the purchase of fertilisers. For pesticides, an additional amount of Rs 7-8 billion will be spent after the imposition of tax. This would also reduce Pakistan's exports."
He lamented, "the contribution of the agriculture sector to GDP growth is 24 percent that may decline to 19-20 percent after this tax is imposed". Mughal said that with this additional burden of Rs 70-80 billion on the agriculture sector, the total number of people living below the poverty line would increase from 80 million to 110 million.
The after affects of the imposition of sales tax on agricultural inputs may include an increase in the price of flour from Rs 32 per kg to Rs 40/kg, rice from Rs 95/kg to Rs 150/kg, eggs from Rs 62 per dozen to Rs 100 per dozen, goat meat from Rs 500/kg to Rs 600kg, beef from Rs 250/kg to Rs 300 per kg, chicken from Rs 240 per kg to Rs 300/kg.
He explained that it would have multiple negative impacts on the fragile economy of Pakistan with an overall decline in agricultural productivity that would lead to an increase in unemployment. "Almost 5 million tenants may be unemployed in the long run", Mughal stated.
He urged the government should increase the wheat support price from Rs 950/40kg to Rs 1500/40 kg with immediate effect. He added that in case the government does not increase support price farmers may be unable to sell their wheat crop this year as the commodity is being sold at $321 per ton in the international market. Feudals reign supreme in the country that is why instead of imposing farm tax on income mode the government has decided to impose tax on agricultural inputs that would hit the poor farming community, he added.
When Business Recorder asked Sartaj Aziz, former finance minister, about the 17 percent sales tax on agricultural inputs, he said, "it is true that the government is forced to take this step due to the delayed bail-out package under the Stand-By Arrangement programme but approval should have been sought from parliament. Instead of imposing tax on agricultural inputs, there should have been farm tax on income mode through legislation", Aziz further stated.
Dr Ashfaque Khan, former economic advisor of finance ministry concurred with Sartaj Aziz's proposal to tax farm income. But he added that cotton growers earned over Rs 300 billions due to increased commodity prices from Rs 6,000 per maund to Rs 12,000 in international market. So what is the big deal if they pay 17 percent tax on agricultural inputs, he queried rhetorically.