LAHORE: In a significant setback to the sales tax department, a recent tribunal ruling has declared that cut wood from trees, including poplar and eucalyptus, remains agriculture produce and is exempt from sales tax.

The department’s attempt to impose sales tax on farmers selling cut wood to wood processing companies has been thwarted, leaving farmers relieved and the department reeling.

The sales tax department had been attempting to recover sales tax from farmers under Section 11(2) of the Sales Tax Act, 1990.

The case involved a chipboard manufacturer who purchased cut wood from farmers and middlemen. However, the tribunal held that cutting wood into pieces does not constitute a manufacturing process, and the wood remains agriculture produce until further processed into chipboard or laminated wood.

The ruling stated that Entry No. 10 of Table-II of the Sixth Schedule to the Sales Tax Act, 1990, exempts agriculture produce from sales tax.

“This is a clear failure of the sales tax department to understand the nuances of agriculture produce,” said a leading tax consultant. “Farmers have been unfairly targeted, and we welcome this ruling,” he added.

He further criticised the department’s action as an attempt to overstep its authority and burden farmers with unnecessary taxes. “This ruling exposes the department’s misguided policies,” said Dr Muhammad Khan, an agriculture expert. “Imposing sales tax on agriculture produce would have devastated farmers’ livelihoods.”

Farmers across Pakistan have expressed relief and gratitude for the ruling. “We were worried that the sales tax department would drain our already meagre profits,” said Muhammad Ali, a farmer from Punjab. “This ruling has saved us from financial ruin.”

Another tax practitioner said the failure of the sales tax department to impose tax on cut wood has raised questions about its competence and understanding of agriculture-related taxation. “This ruling highlights the need for better policy-making and implementation,” he added.

The sales tax department has been ordered to revisit its policies and ensure that farmers are not unfairly targeted. As the department regroups, farmers are celebrating this victory, knowing that their livelihoods are secure.

Source: Business Recorder, 2024