The government owes over Rs 44 billion to the fertilizer industry on account of pending subsidy payments-Rs 20 billion, and refunds, Rs 24 billion, claims fertilizer industry. According to a brief of Fertilizer Manufactures of Pakistan Advisory Council on Taxation on Fertilizers, submitted to the National Assembly Special Committee on Agriculture Products, Pakistan is self-sufficient in urea production, thus saving approximately US $ 1.75 billon forex every year.
The domestic fertilizer prices have been lower than international market thus benefiting the consumers. The industry has passed on Rs 527 billion benefit to the farmers in terms of lower prices against gas subsidy of Rs 121 billion received during the last 9 years. The gas price for fertilizer industry in Pakistan is almost double the international industry price. The government owes over Rs 44 billion to industry on account of pending subsidy payments (Rs 20 billion) and tax refunds (Rs 24 billion), thus adding to financial costs. The industry is one of the highest taxpayers and paid Rs 45 billion taxes in 2018, while making profit of Rs 46 billion.
The current mismatch of sales tax on urea production/sales revealed that gas (feed stock) @ 5 percent is Rs 28 per bag; gas (fuel) @ 17 percent, Rs 42 per bag; other inputs @ 17 percent, Rs 35 per bag; total GST paid on production supply chain, Rs 110 per bag; output at GST collected at 2% Rs 35 per bag; and refund/adjustable Rs75 per bag.
The total impact is refundable of Rs 7-8 billion per annum, in case of plants running on LNG/RLNG, refund is even higher @ Rs146 per bag (Rs 2-3 billion per annum). The government was requested to reduce sales tax on gas to zero percent to address the mismatch input and output.
The mismatch of input/output GST on DAP and others products revealed that the phos Acid @ 5 percent, Rs 94 per bag; feed gas @ 5 percent, Rs 09 per kg; others including power and steam @17 percent, Rs 107 per bag; input sales tax paid during the production, Rs 210 per bag; output GST collected at 2 percent, Rs 62 per bag; and refund per bag, Rs 148.
The government was requested that input GST on phos acid and phosphate rock be reduced to zero percent.
The government was also urged that minimum VAT @ 3 percent on import of raw material and fertilizers, in addition to 2 percent sales tax in current Finance Bill, is unlikely to be adjusted against output GST @ 2 percent on selling price of fertilizes; therefore, it will negatively impact the affordability of fertilizers to the farmers. The government was requested that exclusion may be granted from VAT in the interests of farmers.