Taxes on farm inputs pinch small growers

Post Source: Dawn Economic & Business Review

By Mohammad Hussain Khan



THE levy of general sales tax and withdrawal of subsidies as part of next year`s budget has not gone down well with farmers. The government had imposed 17 per cent GST on farm produce and inputs in March this year, that was reduced to 16 per cent in the budgetary proposals 2011-12. Growers said it has a direct bearing on cost of production.

Farmers fear GST would badly hit agricultural productivity as big landholdings are few and 90 per cent are subsistence farmers.

Under new taxation regime the bulk of the growers would find it hard to cultivate crops like wheat, which doesn`t give fair returns owing to questionable writ of the food department. For instance the government, according to farmers, hasn`t increased the rate of 100kg bag of wheat to be procured by the food department. By and large, the growers do not get the wheat support price of Rs950 for per 40kg.

Small growers say they should not be subjected to heavy indirect taxation. They can`t absorb sudden rise of taxes in one-go.

The withdrawal of subsidies on inputs, according to estimates of Sindh Abadgar Board (SAB), would account for losses of Rs245billion to the country`s agriculture sector. With increasing cost, the farmers would avoid applying enough inputs – considered essential for increasing productivity – as the prices would go beyond their reach.

SAB President Abdul Majeed Nizamani says that if a drop of three maunds per acre yield in wheat, paddy and cotton and 100 maunds shortfall in cane per acre yield is to be kept in mind due to withdrawal of subsidies, it would account for loss of Rs204 billion to the agriculture sector. “When prices of inputs record increase, it lessens their use by farmers”, he says.

Dr Nadeem Qamar, President Sindh Chamber of Agriculture (SCA), maintains that the world is pondering over the question as to how to give a boost to agriculture because next 25 years are supposed to be years of agriculture. “The World Economic Forum (WEF) is discussing options how to boost-up farm economy while our government is slapping farmers with GST and flood surcharge,” Qamar says.

Farmers reckon that with new taxation measures a 50 to 100 per cent increase in cost of production may occur. The companies that provide urea and DAP have increased prices on account of gas shortages. Consumers will be the ultimate sufferers since this burden will be passed on to them. For cotton cultivation four to six bags are to be used per acre and for sugarcane 10 bags of urea are preferred. With fresh levies it would not be possible for small farmers to afford it.

Ghulam Rasool, a small grower, says that he doesn`t know what to do after steep rise in input prices because the government is not increasing wheat procurement price while being tail-end grower, he is facing untold hardships to irrigate his land. “My cotton crop is drying as I am not getting required supply of water while the urea bag which I bought for Rs900 is now being sold at Rs1,500”, he complains.

Qamar says prices of tractor has shot up to Rs1,180,000 from Rs870,000 after 16 per cent GST and DAP`s cost is up at Rs3,950 from Rs3,100. Urea was sold for Rs830 in December last and in January this year its price was Rs1,020, showing a 23 per cent increase. Same is the case with seed. For instance, the price of a bag of rice seed available for Rs380 last year has jumped to Rs667. A sustainable growth rate can only be ensured through pro-farmers policies.

SAB`s Mehmood Nawaz Shah adds that worldwide farmers had an uptake of 300kg of nutrients per acre while in Pakistan it is just 145kg per acre. If prices of phosphate fertiliser like DAP are increased, its application will drop. He calls for saving small farmers from indirect taxation and bringing big landholders under direct tax net on the basis of income, provided GST is withdrawn.


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