Foreign investors recommend withholding tax on farm produce

KARACHI: Foreign investors on Wednesday suggested the Sindh government to introduce withholding tax for the sale of agriculture produce in order to bring the sector’s income into tax net and discourage the misuse of exemptions available to the stakeholders.

Apart from the above, the Overseas Investor Chamber of Commerce and Industry (OICCI), the trade body that represents investors from around the globe, in its budget proposals for fiscal year 2019/2020 also advised the government to usher in adjustable withholding tax.

“Advance tax should be introduced on sale of agricultural produce such as sugarcane, wheat, cotton and others,” said the OICCI in its proposals’ paper.

The chamber said there were only around 10 to 15 agencies and enterprises, which acquire such crops.

“The advance tax should be adjustable against income tax payable on net income basis,” it added.

“Rates of withholding and the threshold for the same should be aligned with other products – for example any payment exceeding Rs25,000 should be subject to advance tax at the rate of 1 to 3 percent as the case may be.”

The OICCI also proposed the federal taxation system should be used for such collection on behalf of the provincial government in the same manner as was being done in other cases by the provincial government.

The chamber further said as per the constitution of Pakistan, right of taxing income lies with the federal government except income from agriculture which was taxable under the respective provincial laws.

Agriculture related activities contribute approximately 20 percent of the overall national production, it said adding, however, the collection of agricultural income tax was estimated to be even less than 1 percent of total collection of federal and provincial taxes.

“The disparities in tax levies between different segments of income need to be addressed,” it said in the paper.

The Sindh government and revenue authorities should take all possible measures to increase revenue collection from the agriculture sector, it recommended.

The original rationale of keeping agriculture out of tax net to facilitate small agriculturists is not applicable, due to non-implementation of land reforms, and the benefit of the tax exemption is being availed, as per common perception, by big landowners earning huge incomes and unscrupulous elements by transfer of income and wealth to businesses fronting as agriculture sector, the OICCI said.

The chamber said at present, the tax was payable on ‘landholding’ or ‘net income’ whichever was higher; however, the manner of determination of net income was complicated and therefore in almost 100 percent of the cases tax was received on landholding basis.

“This discourages the taxation on net income basis. Therefore taxability of income on land holding should be abolished and taxes collected on net income basis,” the chamber said.

The OICCI further recommended that all persons holding land should be required to obtain a National Tax Number (NTN), like the one maintained by Federal Board of Revenue (FBR), and may be modified by adding one or two digits so as to identify that source of income was agriculture.

“There is need to redefine agricultural income to include all agricultural activities like non-corporate dairy farming and poultry etc,” the trade body said.

Under the specific provision, the rent for use of agricultural land, which is a general practice especially for large landowners, is an agriculture income, it added.

“There is effectively no mechanism to ensure completeness of recovery of taxes from such receipts. Such rent income should be subject to same rate of tax as is currently in vogue on property income under the FBR system,” the chamber proposed.