The proposed imposition of value added tax on poultry feed will increase the chicken rates at least by 20 per cent, according to industry sources, reports The Nation of Pakistan.

Market experts claimed that farmers will go bankrupt, production will nose-dive, and chicken rates will rise to unprecedented level if VAT is levied from 1 July 2010.

They say that thousands of people will be faced with unemployment, and that it involves not only the poultry industry but the whole agro-based industrial sector will have to bear losses. They added the inflationary trend in the past two years has pushed up chicken cost, while poultry production has dropped by 40 per cent during this period due to high input costs.

They further revealed that the poultry farmers will not be able to pass on the impacts of VAT to consumers because the selling prices are not governed by cost of production but by demand and supply. In such case, the farmers will have to bear the total tax incidence by curtailing the overall production.

The sources told The Nation: "Retail being done through makeshift outlets on footpaths with no name, NTN or Sales Tax/VAT registration, VAT transfer to the consumers is not possible in case of poultry products. In such case, the farmers will have to bear the total tax incidence. Producers will be forced to curtail production, disrupting the demand and supply equation leading to a further increase in prices for the fewer affordable consumers

"Three years back, Pakistan was producing 800 million chickens a year that went down to around 550 million, the industry had just started turning around when VAT threat dampened the spirit of the farmers."