LAHORE - The local meat industry has showed surprise over linkage of income tax exemption to Halal certification as if Pakistan so far does not produce Halal meat.

The stated policy of the Ministry of Finance and FBR has been ‘no further income tax exemption’. However, in the budget 2015-16, income tax exemption has been granted vide Clause-126K in ‘Part-1 of second schedule of Income Tax Ordinance 2001’.

The clause states ‘Profit and gains derived from a taxpayer from an industrial undertaking set up between 1st day of July 2015 and 31st day of December 2016, which is engaged in operating Halal meat production and has obtained Halal certification, for a period of four years beginning with the month in which the industrial undertaking is set up or commercial production is commenced whichever is later.’

‘Since all meat that is being produced in the country is Halal, the objective of giving income tax exemption to Halal meat production is really mind boggling and beyond comprehension,’ said a source in meat industry.

A tax expert added that under various exemptions given from time to time, the mandatory requirements were that the company should be incorporated after the date of the notification and further evidence to ascertain that the industrial unit was established after the notification was that the letters of credit should have been established after the date of the notification and not prior to the notification.

The tax expert further observed that already established undertaking was never considered for providing income tax exemption. Further, an industrial undertaking already in the process of being established was not given any exemption only because it had commenced production during the exemption period.

He said that this clause has raised serious concerns in the poultry industry as there would be no distinction between a Halal meat producer sitting in a shop and slaughtering live birds and then using some energy to cut the chicken or to do de-feathering mechanically or making minced meat and those who would be investing billions of rupees into the slaughtering and value addition process. They fear that this clause will only serve the interest of already established undertakings or those that are about to commence production. The entrepreneurs who decide to establish Halal meat production as an outcome of Clause 126K will not be availing the income tax exemption because their units cannot be completed within a short period of two and a half year. ‘The clause also very clearly indicates that our finance managers are completely ignorant of the fact that poultry industrial units cannot be set up in such a short time – for meat production it takes not less than four to five years. So the industry fails to understand the wisdom behind granting such a ridiculous tax exemption,’ industry experts asked.

‘If this allowance is to produce Halal meat for the export market, then obviously the objective should be very clear that the unit must export at least 50% of its total production capacity and the capacity should also have been determined because every meat that is being produced is Halal.’

A tax export observed that Section 29-C of the Income Tax Ordinance 2001 states an industrial undertaking means ‘an undertaking which is set up in Pakistan and employs ten or more persons in Pakistan and involves the use of electrical energy which is mechanically transmitted and is not generated by human or animal energy’, therefore, this has made availing of income tax exemption for a period of four years extremely simple and easy to the extent that anybody, even those operating from a small shop, can set up an industrial undertaking within a week’s time and avail income tax exemption by simply obtaining a Halal certification.

‘A much better alternative is to provide 75% depreciation in the first year which helps in capital formation of the unit, because income tax exemptions have often led to malpractices. Even the income earned from other businesses is quite frequently dumped into exemption units. Thus, the black money finds a source to be whitened, as such, income tax exemption will not prove to be beneficial for the national economy as no additional revenue will be generated. Thus clause 126K should be deleted,’ the tax expert suggested.

He, however, added that if it is considered expedient to grant income tax exemption to trigger organized meat production primarily for exports, the notification should be re-worded. ‘

The spirit of the notification should be to bring about a modern processing plant capable of being accredited by importing countries for imports. There should be a minimum production capacity in tonnage or number of birds per hour, cattle heads per day and to create substantial employment and ensure exports.

He said this would also provide equal opportunity to all those who want to set up a unit and not only to those that are already at a point to commence production after the first day of July or have commenced production but obtain Halal certification after the first day of July 2015.