GST withdrawal for cheaper fertilisers

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Adnan Ali Mughal

Since the government has adopted a very cumbersome process to verify and pay the subsidy claims, billions of Rupees, contributed to the subsidy programme by the fertilizer companies, remain unpaid for several months now. This excessive delay in subsidy payments is creating serious financial problems for the urea manufacturers and importers. After repeated complaints and requests, the government is now considering a major tax proposal to completely abolish the general sales tax (GST) on all fertilizers, nitrogenous and phosphatic from the next financial year.
the financial experts are of the view that the reduction of GST should be on both – inputs and outputs, in order to achieve the desired impact and avoid undue refunding hiccups and resultant financial complexities The proposal was made by the Ministry of National Food-Security and Research, being linchpin between the Finance Ministry, the Federal Board of Revenue (FBR) officials and the fertilizer industry. The ministry also seeks to abolish the with-holding tax (WHT) of 6% on pesticides.
The suggestion was made after it was experienced that; the cash subsidy on fertilizers offered to the farmers through the fertilizer industry, is facing major difficulties in implementation. The food-security and finance ministries and FBR have failed to devise any mechanism for quick verification of the subsidy-claim documents submitted by the fertilizer companies.
Subsidy claims worth nearly R 15 Billion Rupees are stuck, as the provinces unnecessarily dragged into the process, are in no position to verify them. The ministry and FBR lack the capacity to verify the claims which are already indemnified by the claimants. The fear to be referred to the ‘National Accountability Bureau’ (NAB) for investigation has virtually paralyzed the functioning of this essential industry.
The government had reduced the GST on urea from 17% to 5% through the Kissan Package, since the beginning of the current financial year. Under the scheme, the government had to provide a subsidy of Rs.156 per bag, including GST reduction of Rs. 184 per bag, while urea manufacturers were to pool in another Rs. 50 per bag in the scheme.
The scheme was necessitated, because for the first time in the last 40 years, the performance of Pakistan’s agriculture sector has registered a decline of 0.19% during the last financial year FY16 compared to a growth of 2.5% in FY15. This helped lower the price of Urea from Rs. 1790 per bag to Rs. 1400 per bag. This has helped increase agriculture production during the current fiscal year.
Similarly, the government promised a cash-subsidy of Rs. 300 per bag of DAP fertilizer, even though the GST was retained at 17%. There is a need to end the cash-subsidy and equalize this incentive by bringing the GST to zero. This measure will also help keep the DAP price at a more manageable level.
The food-security ministry is lobbying to ending the 6% WHT applicable on pesticides – a sector which is already out of the GST net. The WHT is negligible and its abolition will help further lower the agricultural input cost. The Farmer unions and communities are actively putting pressure on the government to reduce taxes, whereas the ‘Fertilizers Manufacturers of Pakistan Advisory Council (FMPAC) has also proposed some measures to reduce the cost of production, by bringing the fuel-gas prices in line with other sectors and reducing the GIDC on feed-gas accordingly.