EDITORIAL: The countrywide strike by flour mills, which began on July 11, has put into sharp focus the lack of careful forethought and planning on the part of the government in implementing a tax policy impacting the provision of a vital staple food item (yesterday flour millers called off their strike for 10 days).
At the same time, it also highlights the persistent, stubborn resistance of sections of the economy to comply with tax regulations. The recent budget had imposed a withholding tax of five percent on flour mills, as well as an additional 2.5 percent advance income tax on the sale of flour to wholesalers and retailers, and essentially made the millers responsible for collecting this tax from flour dealers.
Flour millers have argued that this action has not only effectively turned them into tax collection agents for the FBR (federal board of revenue), it would also increase flour prices by Rs8 per kilogram. Moreover, flour dealers all over the country are now returning their consignments to mills rather than complying with the tax measure.
As has been detailed in this space before, this tax measure owes its imposition to the continued inability of successive governments to bring an obstinate retail sector into the tax net. While its imposition is not the ideal way to broaden the tax base as it has clearly already had several adverse consequences, the fact remains that the country is contending with a fast-shrinking fiscal space, with vast sections of the economy not paying their due share in taxes, including a highly non-compliant unregistered retail sector. Therefore, one could argue that there is a case to be made for this almost desperate measure to expand the tax net.
Where the government has completely faltered, however, is in its failure to anticipate the consequences of its actions, and plan accordingly. It was clear that a measure that expected flour millers to act as tax collecting agents would significantly increase their cost of compliance with legal regulations.
However, there was little attempt by the government to take them on board before imposing this measure, and assure them that they would be provided with the requisite support to withstand the pressure they were bound to face from flour dealers.
On top of that, ever since the imposition, the government has gone missing even as millers announced their intention to shut down production in protest. Instead of immediately sending out conciliatory feelers and holding negotiations to ward off the threat of strike, the government’s response has been characterised by inaction and lack of engagement. Resultantly, we can now expect huge flour shortages in the market, skyrocketing prices, as well as a thriving black market for the commodity in the coming days.
The governmental incompetence on display vis-a-vis this particular sector is nothing new. Only weeks earlier, the authorities were dealing with a wheat crisis in Punjab precipitated by the caretaker set-up’s perplexing decision to import three million tonnes of the commodity when there was little need for it, with the PML-N-led coalition consequently cutting the procurement target by half, plunging wheat farmers into crisis.
Their protests on that occasion were met by harassment and arrests when the situation demanded a more pacifying approach. In addition, the government’s insistence on fixing wheat prices has repeatedly distorted the market for the commodity.
When the history of governmental interventions is characterised by such lack of transparency, inefficiency and high-handedness, it is inevitable that even much-needed policy measures will inevitably be met with skepticism and resistance.
While a far-reaching appraisal of government interventions in the sector is long overdue, what is immediately needed is for the authorities to engage with flour millers with a view to easing their misgivings regarding the latest tax measures and providing them with the support needed to implement these in a way that doesn’t disrupt their operations.
Copyright Business Recorder, 2024
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