Plucking the poultry: New tax regime for the sector on cards

The poultry industry, which is already in the red with the double whammy of pandemic-induced losses and subsequent hikes in production costs, is going to take another hit as its tax-free income limit is going to be halved to Tk10 lakh from the next fiscal year.

Poultry farm owners with earnings of next Tk10 lakh, will be taxed at 5%, while on annual incomes of over Tk20 lakh, a 10% tax is payable. For the income of over Tk30 lakh, they will have to pay a 15% tax from the existing 10%, said finance ministry officials.

The government plans to bring fish and poultry hatcheries, as well as fish and poultry farming under a single tax slab from next fiscal year. A similar tax structure for fish and poultry hatcheries and fish farming is now in force. 

The move comes as the National Board of Revenue looks to plug tax evasion scopes and boost tax collection, said finance ministry officials.

At a time when the corporate sector is being offered tax exemptions, waivers and other policy support, poultry and fish farming entrepreneurs are going to have an added tax burden in FY23, putting a spoke in the wheel of their businesses that are struggling to dispel pandemic blues amid soaring feed and other input prices, say industry insiders.

"Poultry farmers are now running at a loss. Production cost of chicken per kilogram has shot up to Tk122 per kg, but they are having to sell it at Tk120 per kg. In this situation, the government's move to levy more taxes on them is very frustrating," Nazrul Islam, general secretary at Feed Industries Association Bangladesh, told The Business Standard.

"How can the government impose more tax when their survival is at risk?"  

"Prices of feed making raw materials have gone up by 65%, but we could not pass more than 29% of it on to poultry farmers who are already squeezed by pandemic onslaughts," he noted.

Rakibur Rahman Tutul, managing director at Nahar Agro, said the new tax slab will make their survival more difficult, putting roadblocks on the industry's growth. 

Many poultry farmers have already been pushed out of business as they could not sustain losses because of high production costs, he noted. 

The imposition of regulatory duty on imports of soybean used as a feed making raw material, deeming it as a luxury item, will further exacerbate their woes, said Rakibur.

The entrepreneur also alleged that even if they count losses after making profits a year ago, tax officials are reluctant to accept it. "All in the agro-based industry are at risk of suffering losses anytime no matter what their previous account records are. But we cannot make tax officials accept it," he added.   

Nazrul Islam pointed out that the 5% regulatory duty on soybean imports will lead to a Tk5 rise in chicken production per kg.

A Tk40,000 crore sector

Over the last four decades, the poultry industry has developed into a Tk40,000 crore sector, which was meeting more than 40% of the meat demand in the country. Before the Covid-19 hit, the sector's growth was 12-15%. But, it has suffered a negative growth owing to the pandemic, industry people said. 

The rising feed costs have now derailed their efforts to recover from pandemic shocks, they noted.

Soaring feed prices lead to fall in poultry production

The production of chicken, the most consumed protein in the country, has largely declined over the past couple of months as prices of poultry feed and its raw materials skyrocketed amid the global tension due mainly to the Russia-Ukraine war.

Besides, falling demand in the face of commodity price hikes is also a reason, sector insiders say

Although statistics on the recent state of poultry farming are not available yet, they can be surmised on the basis of the declining production of chicks and feed. 

The country used to produce some 2 crore chicks a week, which now has declined to 1.5-1.6 crore, according to the Breeders Association of Bangladesh.

"If the situation continues, the production of chicks will come down to 1.2-1.3 crore within one or two months," said Kazi Zahin Hasan, president of the association.

"The situation has worsened so much that we are now failing to sell chicks at Tk5-10 per piece, which was Tk30 in normal times. We even have to kill them to prevent losses," he added.

Meanwhile, feed producers have cut their production – usually 65 lakh tonnes annually – by 20-25% as their production costs have increased sharply, which is not proportionate to their product prices.

"To some extent, the prices of poultry feed ingredients increased by more than 100% but we cannot increase the feed price proportionately," said Shamsul Arefin Khaled, president of Feed Industries Association Bangladesh.

"When we hiked the price by Tk7-8 a kg, we saw many entrepreneurs temporarily closing down their farms, which was why we were also forced to cut down on our production," he said, adding that the amount of the losses would increase if they continued the same level of production.

With an increase of 25% in feed price to Tk3,150 per 50kg sack, the manufacturers said they compromised on profit margins to cope with the raw material price hikes. Besides, many small-scale manufacturers suspended their feed production. 

If the raw material prices increase further, all of them would face a survival fight, they said.

The main ingredients of poultry feed – maize, soymeal and soybean seed – are import-dependent, global markets of which are volatile amid the ongoing war between Russia and Ukraine, the two largest suppliers of food grains and edible oil. The war ultimately caused tension relating to food security for many countries.

Rangpur Sadar Poultry Farm Owners Association General Secretary Md Armanur Rahman Linkon explained how soaring feed prices had a bad impact on egg production and its price.

"Production cost per egg was Tk6.30 just six months ago, which increased to Tk8.30 now. We are selling it at Tk9," he told TBS, adding that production costs of broiler and Sonali chicken, the two most popular poultry chickens, increased the same way.

In the capital kitchen markets, four eggs are being sold at Tk40 now, a kg of broiler at Tk155-160 and Sonali at Tk350.

Entrepreneurs who are producing Sonali chicken and egg are making little profit, sector insiders said, while broiler farms, over 55% of chicken producers, are the losers.

"Amid the rising commodity prices, people are reducing their protein intake, which means demand for our products is on the decline. If we increase the prices of chicken proportionately with production costs, our sales will drop further. So, we cannot do that," said Mashiur Rahman, president of the Bangladesh Poultry Industry Central Council.

On the other hand, low-profit margins are forcing entrepreneurs to turn away from the business. In such a situation, the council has sought some facilities in the upcoming budget to boost the sector that can ensure protein for all at affordable cost.

Among others, it demanded a tax holiday until 2030 for the sector, withdrawal of duties and advance income tax on capital machinery and raw materials, and decrease in corporate tax to 5% from the existing 15%.