FOR once, it is hard to argue against the reason that compelled flour mills to call a nationwide strike from Thursday. The flour mill owners are demanding that the government revoke its decision to declare them ‘withholding tax agents’ for the collection of 2.5pc advance tax imposed across the retail supply chain. They want the authorities to directly collect the said tax from retailers and other players in the chain. The imposition of withholding tax on the retail supply chain in the budget for the present fiscal year, rather than taxing traders directly as is the widespread demand, underlines the deep-rooted problems of inequity and unfairness plaguing our inefficient tax administration. The mill owners are justified in rejecting their status as withholding agents because it saddles them with heavy costs, opening up new avenues of corruption for the tax authorities. According to the Pakistan Flour Mills Association, the dealers had refused to share their tax details with the mills with regard to the withholding tax and the mills cannot bear this expense from their own pockets. It is beside the point that withholding taxes always burden consumers through price increases — just like any other indirect levy — and not the persons meant to be taxed.

That said, the strike has raised the spectre of nationwide wheat flour shortages in urban areas over the next several days, owing to disruptions in fresh supplies to the market. With chakkis and flour dealers also joining the strike, market watchers expect the present stocks available with retailers will be exhausted fairly soon, especially because the PFMA has pledged to continue the strike until its demands are met. The staple’s shortage would be calamitous for lower- and middle-income urban households, which have been crushed by record food inflation over the last couple of years as well as heavy direct and indirect taxation owing to the tough fiscal adjustments being made to meet the requirements of another IMF bailout. By not directly taxing traders and many other segments of the population, the government has again made a bad policy decision and pushed itself into a blind alley. What options would the authorities be left with if flour millers refuse to budge from their position? In that scenario, it might allow them to implicitly pass on the cost to the unfortunate consumers through a price increase.

Published in Dawn, July 13th, 2024