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Solving the poultry puzzle

Exports play an important role in a country’s economy, influencing the level of economic growth, employment and the balance of payments. The fundamental relation between economic growth and exports has long been a subject of discussion and debate among economists, the public sector and trade professionals. They believe that export growth is one of the main indicators of economic growth in production and employment. This is called the Export-led Growth (ELG) hypothesis. Do our finance managers believe in ELG and is the tax regime prepared by them fair enough for local entrepreneurs to grow and become exporting entities? To find answers, let us examine the factors affecting our competitiveness in poultry — a great source of protein and an important building block for bones, muscles, cartilage, skin, and blood. It may be mentioned here that Pakistan, along with other developing countries, is also facing the problem of acute protein malnutrition. Unfortunately we have not been able to make our presence felt in the international Halal food market which has reached $3.7 trillion. Studies reveals that those involved in the poultry business with state-of-the-art units are not in a position to survive even in the local market.

Despite being the 9th largest chicken producer in the world with 1.2 million broilers produced during 2018-19, Pakistan has only 5 poultry processing plants, processing less than 5 per cent of the total broilers produced. On the other hand, the world’s 8 largest broiler producers and also a number of countries producing far below our production, process more than 95 per cent of the total broilers produced in their respective countries. The difference is mind boggling! This is only because of the tax anomaly. Quite contrary to this fact, in Pakistan, out of the total broilers produced, 95 per cent are sold through the unorganized and unhygienic wet market whereas only 5 per cent are routed through state-of-the-art units for processing and value addition, posting a huge chunk to the government treasury in the form of various taxes. It goes without saying that it is time for the government to take measures enabling our entrepreneurs to support the country in reducing its trade deficit. There is a dire need to revisit the taxation policy and revise it with consultation of stakeholders. The government should take a bold step soon to install this process if it wishes to promote industries, create jobs and take the Pakistan economy to a new level.

It is astonishing to note that finished poultry products under FTA with Malaysia are allowed to be imported free of import duty and sales tax and from China at a preferential rate of 10 per cent customs duty while, on the other hand, the imported raw materials for producing poultry feed and for processed value added chicken products are subject to heavy custom duty, sales tax, additional duties, etc. When raw materials are taxed, the cost of production cannot be competitive in the export arena where the battle is against exporters who produce all the raw materials within their own country.

 

It may be mentioned here that in progressive countries like UK, food used for human consumption, which includes products consumed as part of a meal or snack, are not only exempted from VAT but are zero-rated and are entitled to input tax credit. On the other hand, most countries desirous of increasing exports of agriculture, poultry and livestock produce, provide substantial incentives to their exporters by substantially subsidizing freight and other incentives such as provisioning of restitution. It is pertinent to mention here that the government can offer a subsidy on freight costs to exporters of all poultry products. This will provide the exporters some relief and help them in exploring new export markets for Pakistani poultry products.

In order to restrict the import of value added poultry products, the government must impose a regulatory duty of at least 40 per cent on imports of such products, processed chicken and tab eggs. This will give our poultry exporters the much needed space they require for growth. The incumbent government must take all possible measures to promote regional trade and EGL of the economy to bring the country out of the quagmire of multiple crises.

It goes without saying that with timely implementation of such policies, the economy of the country would improve in the months to come as Pakistani products were being exported earlier as well. Furthermore, conditions (a), (b) and (c)of Para 4 of SRO 711(1)/2018 dated June 8, 2018, needs to be amended to provide 4% drawback to the exporters of poultry products. There should be no condition of giving 2 per cent initially and the balance 2 per cent on achieving 10 per cent growth in exports in subsequent year. The duty drawback can be paid to the exporters by the Ministry of Commerce from its export development budget.

To curb illegal imports the government should make it mandatory for all exporters of chicken products to comply with Pakistan’s Halal Standards. As such, every consignment of poultry product reaching Pakistan must be accompanied by a certificate duly authenticated by the Halal Regulatory Authority nominated by the importing country, as is being done by other Muslim countries, certifying that the chickens have been hand slaughtered by Muslims and were not stunned by any method before slaughtering and that the birds have not been fed diet containing pork byproducts, No non-Halal ingredients should have been used in production of the value added products.

In short, the government needs to compete with other exporting countries in providing incentives to its exporters if the government desires to enhance exports.

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