At last, the government seems to have gotten it right. Measures such as removing the sales tax on the entire range of farm machinery, most importantly tractors, and seeds of important crops like oil seeds that can help with import substitution can only be welcomed.
The tax reduction on tractors alone, a long-standing demand of the farmers and the industry would reduce its price between Rs50,000 to Rs150,000 per piece — a massive relief for the sector that grew at a healthy rate of 4.4 per cent this year and is expected to maintain the momentum next year.
Farmers are expecting direct help from these steps in the shape of reduction in the cost of production, which is their foremost demand and an increase in yield through quality seeds and efficient farm machinery.
The industrial side of the agriculture sector also believes it will benefit from these measures since the removal of taxes will even out the field for them. The formal quality engineering sector has been paying 17pc tax whereas the informal sector did not, rendering the former totally uncompetitive.
Tax exemptions and reductions, especially on tractors, can provide massive relief to the farm sector
With the field now being even, the formal sector will not only win through quality but help modernise the entire sector as well.
The government, on its part, needs to get its subsequent planning right so that it can harvest the full benefits of these tax relaxations. It has helped the farm industry by reducing its sale price and expanding its potential market. It is time to facilitate or force it to improve the quality of its product.
Old farm machinery has been a bane for the sector, costing it yield losses of up to 10pc, which, in certain cases like wheat, had a significant adverse national impact. Old thrashers, harvesters, sprayers and drills have harmed farm production more than helped.
It is time to shift focus to the quality of products and ensure it by attracting investment, inviting world-recognised manufacturers to Pakistan and helping direct local investment to it. Created by a new tax-free regime, this is an opportunity that should not be lost.
The creation of a tax-free regime for the industry could certainly help the sector. The government, however, must also measure the cost of its steps because its efforts to promote one crop will impact others.
The finance bill has given special attention to oil seed crops to help reduce the burgeoning import bill. But, it does not seem to have spared thought about what would happen if this policy really succeeds. All oil seed crops compete with wheat during the Rabi season, and are winning due to commercial success — wheat is already losing to them.
With fresh help, the chances of oil seed victory will brighten further. What would happen to wheat, which is in a bigger crisis and causes more financial commotion than oil seed imports?
What would happen to wheat if the oil seed crop claims more area at the cost of wheat? For the success of the oil crop, the government should have come up with a wheat plan as well — so that agriculture realities square up in the end and lopsided progress does not create bigger mayhem.
Published in Dawn, The Business and Finance Weekly, June 13th, 2022