Meat industry concerned over linkage of tax exemption to halal certification

LAHORE: The local meat industry has expressed concerns over linkage of income tax exemption to Halal certification.
The stated policy of the Ministry of Finance and the Federal Board of Revenue (FBR) has been ‘no further income tax exemption’.However, in the budget 2015/16, income tax exemption has been granted vide Clause-126K in Part-1 of the Second Schedule of Income Tax Ordinance 2001.
The clause states, “Profit and gains derived from a taxpayer from an industrial undertaking set up between the first day of July 2015 and 31st day of December 2016, which is engaged in operating Halal meat production and has obtained Halal certification, for a period of four years beginning with the month in which the industrial undertaking is set up or commercial production is commenced whichever is later.”
“Since all meat that is being produced in the country is Halal, the objective of giving income tax exemption to Halal meat production is really mind boggling and beyond comprehension,” a source in meat industry said.
He said exemption is not required for exports that were already exempted from all taxes and duties.A tax expert said that under various exemptions given from time-to-time, the mandatory requirements were that the company should be incorporated after the date of the notification and further evidence to ascertain that the industrial unit was established after the notification was that the letters of credit should have been established after the date of the notification and not prior to the notification.
The tax expert further also said that the already established undertaking was never considered for providing income tax exemption. Furthermore, an industrial undertaking already in the process of being established was not given any exemption only because it had commenced production during the exemption period.
This clause has raised serious concerns in the poultry industry, as there would be no distinction between a Halal meat producer sitting in a shop and slaughtering live birds and then using some energy to cut the chicken or to do de-feathering mechanically or making minced meat and those who would be investing billions of rupees into the slaughtering and value addition process, he said.
They fear that this clause will only serve the interest of already established undertakings or those that are about to commence production.
The entrepreneurs who decide to establish Halal meat production as an outcome of Clause 126K will not be availing of the income tax exemption because their units cannot be completed within a short period of two and a half year.
Experts say a much better alternative is to provide 75 percent depreciation in the first year, which helps in capital formation of the unit, because income tax exemptions have often led to malpractices. Even the income earned from other businesses is quite frequently dumped into exemption units.
An expert said; however, that if it is considered expedient to grant income tax exemption to trigger organised meat production primarily for exports, the notification should be reworded.“The spirit of the notification should be to bring about a modern processing plant capable of being accredited by importing countries for imports.”