In a letter sent to Finance Minister Ishaq Dar, Chairman, PPA, Khalil Sattar said that after the withdrawal of zero rating status to the sector the cost of production of processed value-added chicken products has gone up by Rs 20 to 40 per kilogram, therefore, “it is requested that zero rating be restored on processed chicken and value-added chicken products falling under PCT Headings 0206, 1601 and 1602.
Prior to the budget 2013-14, both value added milk products, including flavoured milk, yogurt, cheese, butter, desi ghee, whey and cream, etc and similarly, all value added chicken products were zero rated.
In the budget 2013-14, zero rating was withdrawn from both the products. However, subsequently, zero rating on packed and all value added milk products has been restored but zero rating on packed value added chicken products has not been restored. ‘The withdrawal of zero rating on processed chicken has given a further edge to imported poultry products and to the unorganised sector because imported chicken under Free Trade Agreement (FTA) with Malaysia is free of import duties and under FTA with China subject to 15 percent import duty with sales tax exemption,’ reasoned the Chairman PPA.
On the other hand, he said, when we import our inputs for preparation of value added products these are subject to import duties ranging from 5 percent to 30 percent plus 17 percent sales tax, while all our food grade packing materials, electricity, fuel, lubricants, refrigeration gases, sanitises, are also subject to 17 percent sales tax which, after the withdrawal, has become part of the cost.
Khalil Sattar said that FTA is already a setback to local production as since the FTAs were signed some of the multinational fast food chains have started importing their requirements from Malaysia and China and a local value added processor has stopped local production and started importing finished products from Malaysia and repacking them in their brand for sale. This could be checked from the FBR records.
Chairman PPA said that due to this withdrawal of zero rating status, the unorganised sector is getting more benefits. ‘The processor has to pay heavy labour cost, very heavy overheads, huge electricity and gas bills, heavy financial costs, taxes like Social Security, EOBI, Workers Profit Participation Fund, payment to apprentices and handicaps, etc. The sum total works out to Rs 40 to Rs 60/kg depending on the product,’ he added.
But the cost to the unorganised live bird and street side slaughter wet market is no more than Rs 04/kg, while the unorganised sector pays no taxes at all whereas the organised sector pays all kind of taxes and produces high quality products. ‘This clearly shows that withdrawal of zero rating has given rise to an uneven playing field against the imported chicken products as well as the unorganised domestic sector,’ he said.
Chairman PPA highlighted that between 1979 to 1998, number of processing plants namely Pakistan Poultry Produce of Minwalla Group Karachi, Jiffey Chicken of Wazir Ali Family Karachi, Modern Poultry Processor Karachi, KK Chicks of Climax Fan Group, Bibi Jan at Gujranwala and Lahore, J-Haziat International at Abbottabad and M Artal International at Lahore were established but suffered heavy losses at the hands of the unorganised sector and were forced to close down.
‘It is in the backdrop of this fact the government, Ministry of Food, Agriculture and Livestock, and Ministry of Commerce had embarked upon a policy to bring about a material change in the meat sector including both chicken and red meat. The setting up of processing plants for attaining enhanced quantitative and above all qualitative objectives and more importantly to bring about stabilisation in poultry products prices had been encouraged through various measures for an ultimate value added exportable surplus,’ he added.
Moreover, he adds, to ensure survival of processing plants in the face of challenges from the unorganised live birds and street side slaughter wet market, the then government considered it expedient to provide the facility of zero rating to processed chicken meat and its products which was put in place.
Chairman PPA further said that presently out of the total agri products, which is about 21 percent of the GDP, only cotton, wheat, oilseeds, partially milk and about 1 percent of the poultry is in the tax net through processing and value addition, as rest of the produce is sold through the unorganised non documented economy. ‘The only way of bringing the products into the tax net is by encouraging processing and value addition. The encouragement by way of providing fiscal incentives would help in documenting the agro economy to yield high revenues by way of Income Tax from processor, packing industry, distributors and so many other downstream industries,’ reasoned the Chairman PPA.
In the United Kingdom as per VAT Act of 1994, Schedule 8, Group 1 specifies food of a kind used for human consumption is zero rated. The food for human consumption is not only exempted but is entitled to input tax credits. Many other developed countries, which have much higher per capita income than Pakistan, have zero rating or a preferred very low rate of VAT on food products. There is no moral strength in asking underdeveloped nations to levy a tax on food consumed by the middle and lower middle class, which may obstruct development of value addition to agriculture products and food items,’ he reasoned.
In developed countries like UK/EU not only poultry and poultry products in all forms are zero rated but also food/feed for poultry and game birds is zero rated. ‘The existing processing plants are making endeavours against all odds of uneven level-playing field, thus, need full government support. Only a successful poultry processing sector could stabilise the current roller coaster price of poultry and build up an exportable surplus,’ concluded Chairman PPA in his letter to the Finance Minister.
He also requested that in order to compete with the imported products, inputs falling under PCT Headings 0904.1200, 0910.9100, 1905.9000, 2103.9000 and 2501.0090, which go to make value added products be allowed to be imported free of customs duty educing the multinationals to source their product from the local producers thereby saving valuable foreign exchange of the country.