Purchase of agriculture produce: government withdraws exemption from 3.5 percent withholding tax

The federal government has withdrawn the exemption from 3.5 percent withholding tax on the purchase of agriculture produce vide FBR S.R.O.1161 dated 31st December 2010. Through this notification, FBR has amended SRO. 586 (1) / 91 saying:
(a) In the aforesaid notification, in clause (ii) the phrase "a local authority" shall be replaced by the phrase "a local government" and (b) In the aforesaid notification, in the beginning of clause (v), the word "person" shall be replaced by the words "growers/producers of agriculture produce" and after the phrase "or an Association of Persons (AOP) having turnover of Rs 50 millions or above" the phrase "or an individual having turnover of Rs 50 millions or above" shall be inserted.
Talking to Business Recorder here on Tuesday agro-economist and tax experts apprehended that after this waiver of exemption flour, sugar, pulses and ghee will become costly and the prices of every such product will increase in which agriculture produce is used as a raw material.
Criticising the government decision, Tax Expert, Shahid Jami said the policy makers have pushed the public and business class towards tax revolt by making decision against the ground realities such as prevailing economic crunch and the food inflation. He recalled that through notification SRO 586 of 1991 agriculture produce was exempted from withholding tax. Now after elapse of twenty years when the inflation is at the peak, the exemption has been withdrawn where agriculture produce has not been purchased directly from the farmers. Since most of the buying of agriculture produce is made through commission agent, therefore exemption available to the farmers would be meaningless.
He said withholding tax at concessionary rate of 1.5 percent is already levied on rice, cottonseed and edible oil, which are not considered as agriculture produce, whereas now such agricultural produce which have not undergone any processing withholding tax shall be charged at the higher rate of 3.5 percent and the commission agents would be forced to pay more tax than their earned commission. Therefore, withdrawal of such notification is in the interest of both government and the public, which has been issued untimely and unwisely and even the Federal Board of Revenue (FBR) has not issued any press release.