In a major setback for the sales tax department, a tribunal has ruled that cut wood from trees, including poplar and eucalyptus, qualifies as agricultural produce and is therefore exempt from sales tax. This decision has brought relief to farmers while exposing flaws in the department’s taxation policies.
The sales tax department had attempted to impose taxes on farmers selling cut wood to wood processing companies, citing Section 11(2) of the Sales Tax Act, 1990. However, the tribunal ruled that the process of cutting wood into pieces does not constitute manufacturing, and the wood remains agricultural produce until it undergoes further processing, such as being made into chipboard or laminated wood.
The ruling relied on Entry No. 10 of Table-II of the Sixth Schedule to the Sales Tax Act, 1990, which specifically exempts agricultural produce from sales tax.
A leading tax consultant welcomed the ruling, criticizing the sales tax department for what he described as a failure to understand agricultural nuances. “Farmers have been unfairly targeted with unnecessary tax burdens, and this decision corrects that overreach,” he stated.
Agriculture expert Dr. Muhammad Khan also condemned the department’s attempt to impose taxes, warning that such measures could have severely impacted farmers’ livelihoods. “This ruling is a much-needed reprieve for farmers who were at risk of financial devastation,” he added.
Farmers across Pakistan have expressed relief and gratitude for the tribunal’s decision. Muhammad Ali, a farmer from Punjab, said, “We were worried that the sales tax department would deplete our already limited profits. This ruling has saved us from financial ruin.”
The tribunal’s decision has also raised questions about the competence of the sales tax department in understanding agriculture-related taxation. A tax practitioner suggested that the department needs to revisit its policies and improve its approach to avoid unfairly targeting farmers.
As farmers celebrate this victory, the sales tax department has been directed to revise its strategies, ensuring that agricultural producers are not subjected to unjust taxation.
