In a recent report titled “Shaping export-friendly policies for poultry industry”, the Centre for Applied Policy Research in Livestock (CAPRIL) of the University of Veterinary and Animal Sciences (UVAS) has come up with a set of recommendations that calls for reducing the cost of doing business by improving the tax regime and devising export-friendly policies.

The poultry industry has been expanding at eight to 10 per cent a year. This growth has also led to increased domestic consumption of broiler meat, which is expected to reach 26 kilograms per person by 2020 from 16kg in 1993.

In 2016-17, total broiler population was 962 million birds, which produced 1.15 billion tonnes of broiler meat, or 28pc of total meat in the country. The industry’s potential for exports cannot be exaggerated.

In the last budget, the federal government slashed sales tax from 17pc to 7pc on seven different types of machinery that the industry uses. It also withdrew 5pc regulatory duty on the import of grandparent and parent stocks. It also reduced the customs duty from 11pc to 3pc. The Punjab government promulgated Poultry Production Act 2016 and followed it up with Poultry Production Rules 2017.

The poultry industry has to deal with 33 different departments to stay compliant. This creates legal, tax, procedural and administrative hurdles

However, the industry is still facing some problems, which hobble its growth and potential as a global player. The cost of production tops the list of these problems. Feed production is the biggest expense that largely depends on a smooth and reasonably priced supply of maize and pulses. Media reports suggest that the consumption of pulses in Pakistan has dropped from 15kg to 7kg per person in the country because of its unavailability and the pricing factor. This only increases the cost of production for the poultry industry.

As for the tax regime, the report says that turnover tax was increased in 2011 from 0.5pc to 1pc for all industries. The poultry industry fought its case and got it reduced to 0.5pc. Subsequently, turnover tax for all industries was reduced by half in June 2012. This should have brought it down to 0.25pc for the poultry industry, but that didn’t happen.

Withholding tax on the poultry industry was exempted under Income Tax Ordinance 1979. The relevant exemption in the ordinance said: “Persons receiving payments from a company exclusively for the supply of agriculture produce (including fresh milk, live chicken birds and eggs) by any person engaged in poultry farming and by an industrial undertaking engaged in poultry processing, which has not been subjected to any process other than that which is ordinarily performed to render such produce to be taken to market.”

Sales tax at the rate of 16pc on electricity bills is being charged under Section 3(1) of Sales Tax Act 1990. Withholding tax is being charged at 10pc under Section 235(4)(A) of Income Tax Ordinance 2001. Poultry and its products are exempted from sale tax as per the sixth schedule of Sale Tax Act 1990. Both of these taxes increase the cost of production.

In addition to tax problems, administrative issues also play an important role in this regard. The poultry industry deals with 33 different departments, which create legal, tax, procedural and administrative hurdles for poultry production.

As for export promotion, the report says free trade agreements (FTAs) are being negotiated with many countries, but local stakeholders are not part of these talks. Subsidies on the export of processed chicken are a norm globally. For example, the European Union gives a subsidy of 0.325 euro cents per kilogram of frozen chicken. But there is no such provision in Pakistan.

Bilateral trade agreements with countries having different regulations require that the domestic regime be readjusted. For example, Malaysia and China allow the stunning of animals before slaughter for halal meat, but it is not allowed in Pakistan. Non-stunning slaughter increases the cost by 8.5pc.

The report suggests measures for reducing the cost of production by adjusting the tax regime and local cropping patterns besides reducing administrative hassle. It also calls for making necessary changes in local laws to bring efficiency in the domestic market.

Published in Dawn, The Business and Finance Weekly, September 24th, 2018