Flour mills across the country began their protest against a proposed increase in taxes on flour milling as they stopped washing wheat on Wednesday.
In a major development, the federal government decided to remove the proposed 17% sales tax on wheat bran, undoing the decision to abolish the one percent discount on annual flour mill sales after the mills began their protest against the proposed increase in taxes.
On Wednesday, the Federal Board of Revenue (FBR) released clarification regarding the table that prescribes minimum tax rates on sales.
The minimum tax applicable on flour mills would remain at 0.25% of turnover instead of 1.25%. The FBR further clarified that the government is trying to keep inflation under control and provide maximum relief to the business community.
In the Finance Law 2020-21, the federal government proposed to abolish the one percent discount on annual sales of flour mills; increase the tax on the sale of the bran by 10% and the tax on the sale of imported machinery for the manufacture of flour by 7%.
The increase in the sales tax was expected to increase the price of a 20 kg sack of flour by Rs30, while the increase in the bran sales tax would increase the price of each 20 kg sack of flour by Rs67. The implementation of the taxes would likely increase the price of a 20 kg bag of flour by Rs97.
An increase in taxes will significantly increase the cost of imported machinery by millions of rupees. Currently, 65% of the total cost of setting up factories consists of buying and importing modern machinery.
In the proposed finance law, the bran sales tax rate was increased from 7% to 17%, which will have a direct impact on the price of flour.
Currently, flour mills produce around 19 kg of bran from 100 kg of wheat, with a current market price of Rs 1,400 per 34 kg sack. Due to separate bran sales, the price of flour is kept low for consumers.