The Federal Board of Revenue (FBR) is reviewing taxation structure on the import of soybean seed and soybean oil to remove discriminatory tax treatment on the import of latter due to reduced rates of duties and taxes applicable on the former, creating disparity between imports of the said two items.
Sources told Business Recorder Wednesday that the FBR has been approached by the relevant industries and stakeholders to discuss the taxation structure applicable on the import of soybean seed and soybean oil. The FBR is examining the issue during the ongoing budget preparation exercise for 2018-19.
Tax experts said that the tax structure applicable on import of soybean seed is relaxed @ 3% customs duty, 6% sales tax and 5.5% advance income tax that too adjustable, whereas on import of soybean oil the structure is as high as Rs 9,050 or about 12% customs duty, 16% sales tax and advance income tax @ 5.5% in minimum mode. Identical duty structure is applicable on all other edible oils imported in Pakistan such as RBD palm oil and olein, confirmed the industry as well.
A comparison of the taxation structure on the import of soybean seed and soybean oil revealed that reduced rate of 6 percent sales tax is charged on the import of soybean seed which is against the FBR policy of charging a uniform rate of sales tax at 17 percent ie standard rate of sales tax. Under the FBR policy, the tax authorities had rationalized sales tax rates on a number of items bringing them on standard rate of 17 percent. At the same time, the lower rates of sales tax were increased to 17 percent under the same policy. However, discriminatory tax treatment on the imports of soybean seed is evident from the fact that a very low rate of sales tax has been charged at the import stage, creating serious disadvantages to the higher rates of taxes charged on the import of soybean oil/palm oil.
Referring to the papers delivered by internationally renowned and recognized experts and trading houses in Pakistan Edible Oil Conference and Price Out-look-2018 held this year at Karachi, industry sources disclosed that imports of oil-seeds in Pakistan has surged from 0.7 million metric tons in 2013 to over 3.1 million metric tons in year 2017, wherein the imports have grown quite sharply at the rates of 51.7% and 40.9% for 2016 and 2017 alone respectively.
The quantity of soybean and canola oil seed imported in 2017 stood at 1.85 and 1.3 million metric tons correspondingly, thus the extracted soybean and canola oil pegged at 350,000 M. Tons and 560,000 million metric tons respectively. After extraction the reaming soy and canola meal was absorbed in poultry/animal feed manufacturing industry.
The heavily subsidized imported oil seeds left negative impact on local oil-seed crops, consequently the local rapeseed and mustard oil seed witnessed decrease in production by posting negative growth of 3.2% over the year, due to decrease in area sown. The areas brought under cultivation for canola seed was comparatively lower while it was almost same for sunflower seed, as in the previous year. Overall in the year 2016 and 2017, official statistics of Economic Survey of Pakistan reveals decline in production of home grown oil-seeds, negative growth of 5.93% was posted as compared to previous year.
The experts in favor of agro-based economy of Pakistan opined that the anomaly in duty/taxes on import of oilseeds is not only hitting hard the agriculture sector but also widening trade deficit currently faced by country in addition to shrinkage in revenue collection by FBR. Analysts believe that the underlying rationale of taxation policy with respect to import trade needs to be reviewed, both to economies on foreign exchange spending and to cut financial losses incurred by the national exchequer.
The leading commodity trading houses based in Malaysia and Singapore termed this biased and anti-competitive duty structure a tariff barrier on import of palm oil in Pakistan, despite the fact that Preferential Trade Agreements (PTA) exist between Pakistan and Malaysia/Indonesia namely Malaysia Pakistan Closer Economic Partnership Agreement (MPCEPA) and Indonesia Pakistan Preferential Trade Agreement (IP-PTA) since 2007 and 2013. The existing tariff barrier contrary to stipulations of PTAs is resulting in sizeable financial edge to oil seed imports, hence the export of RBD palm olein from Indonesia is not showing desired growth in last couple of years.
The other stakeholders ie poultry feed manufacturing industry is also uncomfortable due to higher price of Soya meal and canola meal produced from imported oilseed when compared to meals imported directly from Argentina, Australia and Brazil.
Taking this into account, the stakeholders such as economists, importers/exporters, industry and tax experts have suggested FBR to revisit and revamp duty/taxes structure protecting revenue loss, agriculture and industrial sector and precious foreign exchange reserves in larger national and public interest, as early as possible since irreparable sizeable damage has already been done and is still going on.
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