MONDAY JANUARY 17: 3.5 percent WHT levy: Ginners decide to stop buying phutti

MULTAN: The Pakistan Cotton Ginners Association (PCGA) has unanimously decided to stop buying phutti (seed-cotton) from Monday, January 17, 2011 as a protest against levy of 3.5 percent withholding tax on the purchase of raw material from middlemen.
"We have decided to cease the purchase of raw-cotton immediately, as a protest against imposition of 3.5 percent WHT on agricultural produce. Our protest will continue till the withdrawal of this decision". Addressing a press conference, Chairman of PCGA, Masood A Majeed, along with Shehzad Ali Khan Vice Chairman (Punjab), Rashid Mehmood,Vice chairman (Sindh), Muhammad Akram, Muhammad Ibrahim, Mehmood Ahmed, Khalid Hanif Lodhi, Sadar-uddin Ehsan-ul-Haq, Abbas Raza, Mukhtar Ahmed Khan Baloch, Muhammad Azam he said that a delegation of PCGA would call on Prime Minister Yousuf Raza Gilani in Multan on Monday to apprise him of their grievances and reservations on the levy of with holding tax. Later this delegation would meet the Federal Finance Minister, and Chairman of FBR.
Masood said that FBR had secretly imposed WHT on agricultural produce with effect from January 1, 2011 through SRO-1161 issued on December 31, 2010, while the ginners had received a letter on January 15 in this regard. All produce purchased during January 1 to 15 from the middlemen is liable to be taxed. Now all ginners were defaulters and liable to be punished under the law, because they neither deducted WHT at the rate of 3.5 percent from the middlemen nor deposited in the national coffer.
He asked how a ginner can differentiate the produce supplied by the growers directly and the middlemen? How can we prove that the "Phutti"was supplied by the growers, which is not liable to be taxed. He said that this system would ruin the small farmers as well as brokers and Arhtis.
He said that ginning industry had paid tax of Rs 5715 million last year, which was four times more tax than preceding years. They had paid Rs 450 per bale (@ one percent) later one percent of total turn over tax. He said that levy of withholding tax on the ginners of Rs 50 million turnover would promote the "Sawjin" machines and chakkis at small level, which would be exempted from the tax and ginners would be forced to demand a crop-cultivation certificate from the growers and proofs of agricultural land issued by the corrupt patwaris.
Defending the middlemen, the PCGA chairman said he provides agricultural inputs to farmers and other financial assistance from sowing process to picking process and takes risk of his investment. How can grower neglect his financer/well wisher. He said that small or big farmer sells his produce at his field and he avoids to visit ginneries. Now middleman would be forced to shift the burden of 3.5 percent withholding tax to growers.
Earlier, he Central Executive Council of PCGA discussed all problems faced by the ginners and approved peaceful protest to save the industry from future crisis.
The Federal Board of Revenue (FBR) announced that exemption of withholding tax on sale and supply of agricultural produce by a grower or cultivator is still intact. SRO 1161(I)/2010 December 31, 2010 has aligned the whole situation in line with the exemption on agricultural income by a grower, as provided in section 41 of the Income Tax Ordinance 2001. FBR in a clarification issued here clarified news reports published in a section of the press recently regarding the exemption of 3.5 percent withholding tax on purchase of agricultural produce, withdrawn through issuance of Board's SRO 1161(I)/2010 Dated 31st December 2010. The issue needs clarification for the facilitation of general public, as follows: Section 41 of the Income Tax Ordinance 2001 provides exemption to 'agricultural income' on sale/supply of agricultural produce by a cultivator/grower. Similar exemption was also available in the Repealed Income Tax Ordinance 1979. Earlier through Clause (v) of Board's SRO 586(I)/91 Dated 30th June 1991 persons receiving payments from a company or an Association of Persons (AOP) having turnover of fifty million rupees or above exclusively for the supply of agricultural produce, which has not been subjected to any process other than that which is ordinarily performed to render such produce fit to be taken to market, was exempted from deduction of withholding tax @ 3.5 percent. Through Finance Act 2010, the definition of 'prescribed persons' was amended and "an individual having turnover of Rs 50 million or above" was added in the list of withholding agents, to deduct withholding tax on sales/supplies [section 153(1)(a) of the Income Tax Ordinance 2001]. Afterwards, the Board had received various representations requesting to include "an individual having turnover of Rs 50 million or above" in clause (v) of SRO 586(I)/91 of 30th June 1991. SRO 1161(I)/2010 Dated 31st of December 2010 was issued with approval of competent authority, wherein following amendments were made in clause (v) of SRO 586: The word "persons" was replaced with the words "growers/producers of agricultural produce", in order to restrict exemption to actual growers/cultivators as prescribed in the law; and the phrase "an individual having turnover of Rs 50 million or above" was added in the list of prescribed persons, who will not deduct withholding tax from growers on sale / supply of agricultural produce.
It is, therefore, clarified that exemption of withholding tax on sale/supply of agricultural produce by a grower/cultivator is still intact, and SRO 1161(I)/2010 December 31, 2010 has aligned the whole situation in line with the exemption on agricultural income by a grower, as provided in section 41 of the Income Tax Ordinance 2001.