Fertilisers, power bills of agriculture tube wells: provinces urge Centre to cut GST by 10 percent

Provincial governments have requested the federal government to reduce GST by 10 per cent on fertilisers and electricity bills of agriculture tube wells in order to support farm sector in the wake of low commodity prices in the international market, it was learnt. Sources said that the reduction in GST was proposed by Punjab government and supported by other three provinces during a meeting recently presided over by Prime Minister Nawaz Sharif to discuss ways and means to support farm sector badly affected by low commodity prices in the global market.
The meeting decided to constitute a committee to further deliberate on the measures proposed by the province especially Punjab government and to suggest doable options. As per rough estimates presented to the meeting, reduction on GST on fertiliser and agri tube wells would involve financial implication of Rs 22.5 billion - Rs 14.1 billion on fertiliser and Rs 8.4 billion on tube wells. Provincial governments proposed that tax short-fall from the GST reduction be compensated by proportionately increasing tax on investment returns, on equity or debt invested in fertiliser industry and also by proportionally taxing profits of fertiliser importers.
Official documents reveal that immediate measures proposed by Punjab government for agriculture sector include: (i) electricity tariff may preferably be lowered but should not be increased from Rs 10.35/ Kwh; (ii) meter connections may be restored on payments of current bills and bills due in August may be considered as current; (iii) recovery of arrears be started after December 31, 2015; (iv) DISCOs must review their disputed bills in co-ordination with the relevant district administrations. The federal government was also requested to postpone the recovery of agriculture tube well arrears as long as farmers' net incomes reflect profitability.
At present, net income of farmers is in the negative due to below-cost market prices for potato, maize, cotton and rice. The federal government was requested to release Rs 13.9 billion as rice compensation to growers with up to 12.5 acres of land, purchase of two million bales by Trading Corporation of Pakistan (TCP) between September 10 to December 31 because prevailing cotton price of Rs 2200-2400/40 kg is considerably lower than the production cost of Rs 2511 /40k. The meeting was informed that the total capital requirement would be Rs 54 billion with financial implication of Rs 12 billion.
The federal government was requested to double the farm credit in two years and State Bank of Pakistan (SBP) to draft a policy for easing collateral requirements in this regard. Provincial governments also suggested making mandatory disbursement targets for commercial banks and Zarai Taraqiati Bank Limited (ZTBL) to double the supply of credit in two years.
Sources said that the Prime Minister has constituted a committee for further deliberation on the measures proposed by the provinces and suggest doable options to provide support to the farm sector. A participant of the meeting said that the Finance Minister said that the government has already provided relaxation in duty to the agriculture sector in the budget and import of machinery is exempted from taxes.
The Punjab government reportedly cited the example of farmers in Indian Punjab who were provided higher loans with a nominal interest rate as compared to farmers in Pakistani Punjab. There is zero VAT on fertiliser, pesticides, sowing seed, farm implements and machinery of 10 categories of 136 implements for the Indian farmers with credit available at 4 per cent interest rate against 8 per cent in Pakistan. Farm credit was reaching to 1.2 million farmers in Pakistan out of 5.2 million and credit available on per acre was Rs 8777 which is far less than the Rs 33000/acre provided to farmers in Indian Punjab. Farmer credit cards have been issued to 2.58 million farmers in Indian Punjab and Rs 570 billion (equivalent to Pakistani rupee) was disbursed to the farmers in Indian Punjab with out any collateral required up to Rs 157,000. The meeting was informed that basmati rice capital requirement is Rs 150 billion and liquidity shortfall is Rs 34 billion. Provincial government of Punjab supports credit rollover facility by the SBP to eligible units if recommended by the Ministry of Commerce.