Fertilizer companies in Pakistan seek Rs 55bn in budget

Aftab Ahmed

Islamabad: The fertilizer companies in Pakistan has sought to approve the release of Rs 55 billion in the upcoming budget 2021-22 on account of GST refunds and pending past subsidy amount from 2016 to 2018.

Moreover, the fertilizer companies also demanded from the government of Pakistan to rationalize the input-output adjustment formula of GST.

Currently, fertilizer companies are getting input at 5-17% of the GST rate in Pakistan and output adjustment at 2% in this tax, resulting in, the sector’s annual unadjusted input sales tax at about Rs 7. 8 billion.

The Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC), in the budget proposals sent to Finance Minister Shaukat Tareen, said that due to the pending dues owed to the federal government, the industry faced cash flow challenges.

It is bearing the financial cost. Subsidy payment of Rs. 19.217 billion is pending for the last three years (2016-18), and refund of outstanding GST amounts to Rs. 38.152 billion.

The FMPAC has called for allocating funds in the Budget 2021-22 to clear arrears on account of subsidies and GST refunds.

The industry said that the current sales tax on the fertilizer supply chain under the existing tax laws has created a significant imbalance between the government’s input and output GST, which has led to a permanent pile of non-refundable amount.

A body of fertilizer companies in Pakistan recommended a reduction in input GST rates. The fertilizer industry collects sales tax on the retail price of all fertilizer products. The government collects the entire sales tax from the fertilizer supply chain through fertilizer manufacturers. Thus, a reduction in input GST rates will not have a negative impact on government revenues from the fertilizer supply chain.

The FMPAC said that in the Government Finance Act 2018, the rate of output GST on the sale of urea has been reduced from 5% to 2% but no adjustment was made in the rates of input tax. The government had maintained at 5-17%, which leads to a substantial increase in unadjusted input sales tax.

The industry is currently paying an input tax of about Rs 101 to Rs 144 per bag of urea, which is higher than the GST of Rs 33 per bag, resulting in a refund of GST at Rs 68 to Rs 111 per bag.

The industry demanded GST classification on both natural gas / RLNG to facilitate GST input and output so that it can be used for all locally produced fertilizer products.

The FMPAC recommended zero ratings of industrial inputs, especially phosphoric acid, rock phosphate (both imported and locally mined), and the steam used for the fertilizer companies in Pakistan. They are manufacturing DAP and other related products in Pakistan. It also calls for giving equal relief on electricity.

The industry has also demanded to bring fertilizers back under the general tax regime instead of the minimum tax system, which puts the burden of raising taxes on the entire agricultural value chain.