Disruption of fertilizer supply feared

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Brig (R) Sher Shah

The Federal Government passed a Tax Ordinance on 26 December 2019 which restricts fertilizer companies from claiming input sales tax on retailing of Urea to unregistered dealers. This overnight knee jerk action by the Government has very serious implications for the industry and the farmers as 99% of urea dealers are not registered in the FBR. The law reads “A registered manufacturer shall make all taxable supplies to a person who has obtained registration under this Act …… failing which the supplier shall not be entitled to claim credit adjustment or deduction of input tax as attributable to such excess supplies to unregistered person”.
While the intent of the law is appreciated, it has serious business implications. The supply chain of fertilizer across the country would be disrupted badly since registration of existing dealers’ network or induction of new dealers is expected to take considerable time. The loss on account of inability to claim the refund/adjustment on the attributable input sales tax on supplies to the unregistered dealers may lead to uncalled for price hike leading to incremental burden on farmers that is not the desire of industry or government. Industry-wide impact is expected into Billions of rupees per annum. In the middle of Rabbi season, any disruption of supply of Urea will have serious implications for the wheat crop and endanger the national food security.
On the edge of government policies, the fertilizer industry is already facing the input and output GST imbalance and this new ordinance, which has been enforced without addressing the legitimate concerns of the fertilizers companies, will lead to losses in billions.
Describing the issue, sources in fertilizer industry disclosed that they pay GST to government in various ways, such as in feed stock gas @ 5% GST is applicable and on fuel stock gas, the fertilizer manufacturer is paying 17% GST and on account of other input taxes industry in paying 17 per cent GST, while the output GST is collected @ 2% GST.
In simple terms, a fertilizer manufacturer is paying 125 rupees as input GST and collects 40 rupees as in output GST, thus 85 rupees refund to the fertilizer manufacturer per bag. As per the new Ordinance, fertilizer companies would not be able to claim the 85 rupees to government because 99% Urea dealers are not GST registered which costs the industry a loss of 10 billion rupees. Furthermore, at this stage the government is already liable to pay 29 billion rupees of fertilizers manufacturers on account of previous sales tax adjustments.
In a statement, Executive Director of Fertilizer Manufacturer of Pakistan Advisory Council (FMPAC) Brig (Retd) Sher Shah stated “Contrary to the government’s claim of promoting “ease of doing business”, this Ordinance may have serious implications on the fertilizer industry as well as the farmers, as the entire supply chain is feared to be disrupted since registration of the existing dealers is expected to take considerable time.” Therefore, FBR has been requested to allow reasonable time to targeted dealers for registration, he further added in his statement.
— The writer is Executive Director, FMPAC.

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