AT last some better sense has prevailed on the official agricultural front. In the revised budget package, the government agreed to reduce the general sales tax (GST) on pesticides from 17pc to 7pc and abolish the recently slapped two per cent import duty on seed imports.

It had earlier announced Rs20bn subsidy package on phosphorus and potash fertilisers and reduced import duty on farm implements from 38 to 9pc — a huge drop of 29pc.

But of all these steps, the reduction in GST on pesticides may also benefit the small growers. It is because the import of farm machinery is limited to bigger farmers only. The duty on seed was slapped and stopped within budgetary debate.

The subsidy packages often have a dubious utility for the farmers as they are ever harder to materialise, if the fate of a number of packages announced last year is something to go by. It leaves only the pesticides, with widespread usage, that could mainly benefit the farmers.

With 10pc drop in taxes at the time of import and then manufacturing, the cumulative drop in prices should be around 15pc, which deserves appreciation. Though the benefit may not come immediately, as the importers had already lined up imports for the current cotton crop, but next crop should be a major beneficiary.

With 10pc drop in GST on pesticides at the time of import and then manufacturing, the cumulative drop in prices should be around 15pc

As the tax regime expanded and skyrocketed in the last few years, many non-professionals took over a chunk of the business in the last four years and pushed many of the genuine businesses out. Since they were not registered manufacturers, their manufacturing and warehousing was almost out of bound for any official check. No one knew where they were keeping the stuff and what was being made out of it.

With the pie of regular businesses shrinking, these importers were always waiting in the wings – releasing stocks at a time and price of their own choice but still keeping the market on short supplies. The regular protests by farmers against quality, prices and supplies have been part of media reports.

This was in addition to receding revenues of the government because of sliding official imports of pesticides. During these four years, the imports which, according to pesticides importers, should have touched Rs40bbn, had gone down to Rs13bn, hitting the official tax collection badly. According to the Economic Survey of Pakistan (2014-15), only 2.75m farms, out of total 8.2m (or representing 33pc) reported use of insecticides in the country.

Ideally, the government should have abolished the tax, at least at the import stage. But, the benefit of its current act, should, nevertheless, be substantial. The government had done its deed and the ball is now in the court of the industry. If it does not pass on the benefit of the GST reduction to farmers, it would only lose moral grounds.

Even more importantly, the pesticides industry is the first one to see reduction in GST. It should cast itself in the role of a model that the farmers could use for lessening GST in other areas. The farmers have been arguing for a total withdrawal of GST on all inputs.

The government, on its part, should watch the industry carefully and ensure that it passes the benefit on to the farmers.

Published in Dawn, Economic & Business, June 29th, 2015

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