Proposed withdrawal of tax exemptions set to aggravate farm sector’s woes

LAHORE: Helpless in the face of harsh conditions set by the International Monetary Fund (IMF), the Pakistan Tehreek-e-Insaf- (PTI) led government is weighing options to withdraw certain exemptions given to farm sector, including reduced general sales tax on seeds, fertilisers, pesticides and machinery, The News learnt on Tuesday.

The PTI government under its party manifesto vowed to increase farmers’ profitability and boost growth primarily by ensuring cheap agricultural inputs. They even indicated provision of subsidies to the farmers on subsistence. However, the present approach of the government is contrary to the pledge made before the elections to woo rural voters by acknowledging needs to maintain sustainable farm economics.

The previous government gave a number of incentives to the farmers, including agriculture credits, customs duty exemption on harvesters, and removal of general sales tax on imported sunflower and canola seeds. Moreover, considering fertiliser as the critical farm input, the government reduced sales tax on fertiliser to 4 percent on diammonium phosphate, five percent on urea and 9-11 percent on other fertilisers from a high of 17 percent. Since last July, there was a reduced uniform general sales tax of two percent on all fertilisers. The objective was to eliminate distortions in the tax regime, reduce fertiliser prices and promote use of balanced nutrients. Sales tax on agriculture machinery was also cut to 5 percent from 7 percent.

Market insiders said the government is pondering different options to withdraw the exemptions and reduced rates of sales tax on agriculture inputs, including seeds, fertilisers and pesticides. If implemented, this will lead to a significant jump in cost of inputs for growers, thus negatively impacting productivity of agriculture sector that has largely been contributing positively to the national economy.

More worryingly, such steps would further fuel the already staggering levels of inflation and hit hard the poor.

Critics warned the government against taking any such step that would increase sales tax burden on the agricultural sector. Otherwise, they added that poor farmers would be suffered badly due to undue increase in the cost of production while consumers would also face the music because of price hike.

Such steps would also be a serious setback to the vast majority of smallholding farmers who have no alternative sources of employment amid slowdown in economic growth. Any impact on their farm economics would have a direct impact on their ability to feed their families. The policymakers should realise that relief given to the farm sector would potentially affect the lives of nearly 28 million people living in the rural areas. Therefore, the government must continue its efforts to uplift the agriculture sector through multitude of initiatives targeted at reducing input costs, improving access of farmers to the market, providing cheaper financing and developing infrastructure as envisaged in the PTI manifesto and its 100 days agenda. This will serve to provide a much-needed boost to the growth numbers and will help the large bases of agriculture-based population to maintain their livelihoods.