Karachi, June 16, 2022: The fertilizer sector is likely to reinstate Rs 83/bag price cut on Urea if the government doesn’t address the industry’s issues of sales tax and subsidy receivables.
Last month, the fertiliser industry reduced the price of urea by Rs 83/bag after discussion with the government regarding its subsidy receivables and resolution of the long-standing cash flow challenges due to GST mismatch issues.
It has been reported that the proposals of the sector to address the input/output tax anomalies were considered by FBR in some way but later they were rejected by the cabinet.
Nothing to address sales tax differential in the budget
No change in sales tax on fertilizers was proposed in the recently announced budget. The industry pays varying rates of 5-17% on different inputs but collects output tax at a uniform rate of 2% from customers which lead to accumulation of receivables from the government.
In the Federal Budget of FY17, a significant reduction in GST on Urea from 17% to 5% was announced. However, at the same time Urea price had also been fixed at Rs 1400/bag, below the then prevalent price of Rs 1780/bag to pass on the benefit to farmers. The output GST was then further reduced to 2% in 2018 magnifying the differential. FMPAC has requested the government authorities numerous times to address this issue of mismatch in input versus output tax over the years.