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ISLAMABAD: The fertilizer industry has urged the government for the harmonisation of the general sales tax (GST) by reducing the rates on inputs to avoid refunds, it is learnt.

The industry has further urged the finance minister to consider their request of addressing the above taxation distortions through the Finance Bill 2021.

The letter written by the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) to the Ministry of Finance with reference to June 14, 2021 meeting between the finance minister and members of the FMPAC, a copy of which is available with Business Recorder, reveals that the fertilizer industry has expressed serious concerns over the increase in sales tax on the produce.

The letter says, “FMPAC would like to extend gratitude for affording us an opportunity to apprise you of the cash flow challenges, being faced by the fertilizer industry on account of taxation anomalies and pending sales tax refunds and subsidy payments. During meeting, Lt Gen Tariq Khan (retd) had drawn your kind attention to the issue of mismatch between input and output GST, resulting in piling up of refunds, which has already swollen to over Rs38 billion.”

The letter added, “It was requested to address the following challenges through the Finance Budget 2021 presented last Friday: (i) GST input/output mismatch, (ii) Allocation of budget for the clearance of past sales tax refunds, (iii) Allocation of budget against past subsidy, (iv) Disallowance of expenditure due to sales to persons not registered under the Sales Tax Act, 1990, (v) The implication of each issue on the industry briefly explained during the meeting are placed on record along with the directions issued by your good self during the meeting to resolve these matters.”

The industry has argued that currently, it has been paying input tax of Rs100 to Rs186 per bag of urea, which is four to five times more than the output GST of Rs33 per bag resulting in GST refund of Rs67 to 153 per bag, for natural gas and RLNG-based urea production, respectively.

The situation of DAP and other manufacturers is much worse because of higher rates of tax on Phos Acid, Rock Phosphate, Power, and Steam.

It is highlighted that this decision is to be executed before the budget is passed by the parliament.

In the absence of action, the industry shall be constrained to pass on the significant finance cost burden to the farmers through price adjustment.

The letter further stated that as a result of the delay in GST refunds processing Rs38 billion outstanding, requesting the Finance Minister to review the options to automate the timely refund processing within a month and issue tradable bonds to settle significant GST refunds of the industry.

It is requested that the delay in refund processing be expedited as the industry has been incurring significant financial burden and shall be bound to pass on the significant finance cost burden through price increase.

“We would like to reiterate that it is highly painful that the commitment of the government remained unfulfilled to-date, thereby shaking the confidence of this highly responsible and compliant strategic segment of the domestic industry,” the letter maintained.

It was; therefore, requested that the subsidy payment be expedited as the industry has been incurring significant financial burden and shall be bound to pass on the significant finance cost burden through price increase.

“We also appreciate the directions given by your good self to review the option to settle outstanding subsidy claims through MNSFR and MOIP through issuance of tradable bonds. It is requested that necessary direction may please be issued to the concern ministries in this regard.”

Copyright Business Recorder, 2021

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