In a major development, the federal government has decided to withdraw the proposed 17% sales tax on wheat bran while undoing the decision to abolish one per cent rebate on annual sales of flour mills after flour mills started their protest against the proposed increase in taxes.

The Federal Board of Revenue (FBR) on Wednesday issued a clarification with regard to the table prescribing tax rates for minimum tax on turnover basis.

It said the table has been substituted in the Finance Bill-2021 to provide relief to retailers of fast moving consumer goods (FMCG) including flour mills and refineries.

“The words ‘flour mills’ could not be mentioned inadvertently in the table which was an error and had been noted and would be rectified in the amended bill.

“This would mean that the minimum tax applicable on flour mills would remain at 0.25% of the turnover instead of 1.25% as being generally interpreted,” it said.

The FBR further clarified that in order to boost the present government’s drive to keep inflation under control and to give maximum relief to the business community, the general sales tax (GST) on wheat bran proposed to be enhanced to 17% in the Finance Bill is also being taken back.

The flour mills across the country started their protest against a proposed increase in taxes on flour milling as they stopped washing of wheat on Wednesday. In the second phase of their protest – starting Thursday [today] – the mills were to stop grinding wheat.

According to the Pakistan Flour Mills Association (PFMA) office-bearers, the mills were to completely close their operations on June 30 and stop supplying wheat to open markets and even Sunday and Sahulat bazars if the government did not withdraw the proposed increase in taxes by the end of June.

Read Flour mills begin protest against tax hike

In the Finance Bill 2020-21, the federal government had proposed to abolish one per cent rebate on annual sales of flour mills; increase the sales tax on bran by 10% and the sales tax on import of machinery used for making flour by 7%.

The increase in turnover tax was expected to increase the price of a 20kg bag by Rs30 while the increase in sales tax on bran was expected to increase the price of each 20kg bag of flour by Rs67. The implementation of the taxes was likely to increase the price of a 20kg bag of flour by Rs97.

In a letter to Minister for Finance Shaukat Tarin, PFMA Chairman Asim Raza last week described the tax hike as the FBR’s error and requested him to maintain the current rate of taxes.

Raza had told Tarin that at present the turnover tax imposed on the flour milling industry has been included in the lowest rate of the schedule under which 0.25% turnover tax is applicable on mills.

In the next financial year’s budget, flour mills have been excluded from the lowest rate schedule and will now be subject to 1.25% turnover tax. If the new rate of turnover tax is implemented, the price of a 20kg flour bag may increase by Rs30 from July 1, he said.

Raza had told The Express Tribune that the current sales tax concession rate on import of machinery used in flour making is 10% which is being increased to 17% in the next financial year.

At present a large number of new flour mills are set up across the country in which modern machinery is being imported from Italy, Germany, Switzerland and Turkey to improve the quality of flour. The imported machinery consumes very little electricity, time and water and thus helps save resources.

An increase in taxes will significantly increase the cost of imported machines by millions of rupees. At present, 65% of the total cost of setting up mills consists of purchase and import of modern machinery.
In the proposed finance bill, the sales tax rate on sale of bran has been increased from 7% to 17% which will have a direct impact on the price of flour.

At present, flour mills produce about 19kg of bran out of 100kg of wheat, with a current market price of Rs1,400 per 34kg bag. Due to separate sales of bran, the price of flour is kept low for the consumers.

In particular, the food department takes into account the price of bran while determining the official price of flour in consultation with flour mills. An increase in the sales tax on bran to 17% is expected to increase the 20kg bag of flour by Rs60 to Rs67.