Budget proposals: FIC for cut in GST and WHT on fertilizers’ import

KARACHI: Fertilizer Importers Council (FIC) has proposed reduction of GST and Withholding Tax on the import of fertilizers from current 2 percent to one percent to support the domestic agriculture sector.

Around 2.2 million tons of DAP fertilizer is used every year by farmers in Pakistan. Out of the total requirement, the sole local manufacturer of DAP fertilizer in Pakistan annually produces around 800,000 tons and more than 1.4 million tons of DAP fertilizer is being imported and sold under various brand names. In addition, around 125,000 tons of Sulphate of Potash (SOP) and Muriate of Potash (MOP) are being imported. While, annual import volume of Aluminium Sulphate fertilizer is around 100,000 tons.

Fertilizer imports are a necessity for ensuring agricultural production and without these imports, crop production will drop drastically.

FIC in its budget proposals, sent to Syed Fakhar Imam Federal Minister National Food Security and Research, Shaukat Tarin Federal Minister for Finance and Revenue, Dr. Waqar Masood Khan Special Assistant to the Prime Minister Finance and Revenue and Asim Ahmad Chairman, FBR has proposed reduction in the GST and Withholding Tax.

According to proposals, fertilizer importers are paying GST@ 2 percent of Maximum Retail Price (MRP) as per import stage Customs MRP formula based on current import CFR and minimum Withholding Income tax@ 2 percent of import value based on current import CFR. Both taxes are fully paid to the government by importers at the import stage before custom clearance.

Around 67 percent of DAP fertilizer consumed in the country is imported as the local DAP production is limited and also based on imported raw materials.

While, some 85 percent of SOP, MOP and 100 percent of AS fertilizers are imported to meet farmer needs. Only around 20,000 or 15 percent SOP is produced in the country.

FIC has said that any increase in GST or withholding income tax will significantly increase the price of these essential fertilizers and negatively impact crop production in the country. The lower crop output will be resulted in higher imports of wheat and sugar and decline in exports of major commodities like rice and cotton.

The CFR import value of DAP fertilizer has increased from $370 per ton to around $ 570 per ton during the last four months. This has already increased DAP price by around Rs 1700 per bag. Accordingly, it has also increased the absolute GST and withholding tax revenues of the Government. Therefore, any further increase in GST or withholding tax will be disastrous for the farmers.

In the interest of passing on the benefit of lower fertilizer to the farmers, FIC has proposed that the GST and withholding income tax may be reduced to 1 percent from the current 2 percent to keep the prices of these essential fertilizers stable.

The FIC, in its budget proposal has also discussed the discrimination created by SRO 1337li)/2020.

SRO 1337(i)/2020, dated December 16, 2020, has created a gross inequality in imported DAP and Potash fertilizer being sold by importers to farmers through dealers.

The SRO has allowed three urea manufacturers to import DAP and Potash and sell without any restrictions to dealers unregistered under the Sales Tax Act. Such facility has been denied to the other eight commercial importers of DAP and Potash.

According to FIC, fertilizer importers are fully supporting the government drive to document fertilizer retail sales to farmers and to bring fertilizer dealers in the tax net. However, this discrimination will discourage the import of fertilizer by the commercial importers.

Some three urea manufacturers are importing DAP and Potash fertilizers in exactly the same manner as eight other commercial importers are importing and exactly the same taxes are applied on both.

They all selling imported DAP and Potash fertilizers in exactly the same manner to the same Dealers, whether these are sales tax registered or unregistered.

However, under SRO 1337(i)/2020 the fertilizer importers are restricted from selling more than around 100 tons or Rs 10 million per party in a month. This is highly restrictive and discriminatory and has the effect of driving commercial importers out of business, the importers body mentioned.

FIC has proposed amendment in SRO 1337(i)/2020 to say “Supply”, instead of “Manufacturing and Supply”. Make it compulsory on both manufacturers and importers to gradually phase-in sales to Sales Tax registered dealers over the next few years. Currently 98 percent of fertilizer dealers are unregistered under Sales Tax Act. FIC has ensured that importers are ready to provide all details required under SRO 1337(i)/2020.

According to budget proposal, national food security is dependent on the import of fertilizers such as DAP, MOP and SOP. These cannot be produced domestically. Moreover, highly discriminatory SRO 1337(i)/2020 must be amended in the interest of ensuring competition and provide lower cost fertilizers to the farmers.

Copyright Business Recorder, 2021