Ethanol industry appeals to FM over new 29% tax in FY25 budget

June 17, 2024 (MLN): The recent tax policy changes for the ethanol industry, which include eliminating the previously beneficial 1% full and final tax and imposing a burdensome 29% tax in the budget for FY25, have created a challenging environment for the industry.

The industry representatives have appealed to Finance Minister Muhammad Aurangzeb, stating that these changes threaten the industry's stability and potential for growth.

This drastic shift comes at a time when the European Union is actively supporting the Pakistani ethanol industry through concessions under the GSP+ (Generalized System of Preferences Plus) scheme, fostering growth and opportunities.

To further elaborate on its importance, they added that the ethanol industry in Pakistan is a critical sector that employs approximately 8,000 people directly and supports 40,000 to 50,000 families indirectly.

It is essential to recognize that the raw materials and resources used in the ethanol industry are 100% indigenous.

This means that the industry not only contributes significantly to the national economy but also promotes the use of local resources, reducing dependency on imports and supporting rural economies.

“In light of these factors, we urge the Finance Minister to reconsider the current taxation policy and provide special concessions to the ethanol industry,” they added.

By aligning with the EU's supportive stance and offering a more favorable tax regime, the government can ensure the continued growth and sustainability of this vital sector.

Supporting the ethanol industry will not only safeguard jobs and livelihoods but also contribute to the broader goal of economic self-reliance and environmental sustainability.

The recent decision to increase the tax rate will make it difficult for the ethanol industry to operate, causing severe cash flow issues and jeopardizing the sector's viability.

Another significant risk is the potential withdrawal of the GSP+ status by the EU Commission.

If the Pakistani government withdraws tax benefits from the local ethanol industry while simultaneously requesting tax benefits for exported ethanol to the EU, it may be perceived as unfair and hypocritical by the EU.

This could escalate into a larger issue, affecting future trade relations and concessions.

Furthermore, if the profitability of the ethanol industry declines due to the increased tax burden, the government will ultimately collect less tax revenue from the sector.

This counterproductive outcome highlights the need for a more balanced and supportive tax policy.

Additionally, reduced profits or break-even results will lead to lower or no dividend distributions, resulting in further loss of tax revenue on dividends for the government.

“We believe that with the right support and incentives, the ethanol industry can thrive, bringing substantial benefits to the national economy and the people it supports,” the statement concludes.

Copyright Mettis Link News