Fertilizer industry input-output GST mismatch: Amendment to Finance Act can help resolve issue

ISLAMABAD: The Federal Board of Revenue (FBR) may address the issue of sales tax collection mechanism on fertilizer industry by removing mismatch between the input-output sales tax to avoid accumulation of refunds and distortion within the entire supply chain.

According to the sources, the FBR can address the issue through an amendment to the Finance Act 2021 by making it part of the Presidential Ordinance on taxes to be issued in coming days.

Meanwhile, the fertilizer industry expressed disappointment over the Finance Act 2021, which has not considered the repeated requests to address the issue of mismatch between input and output general sales tax (GST).

The industry has played the most responsible role during the current regime by restraining to follow the inflation trend unlike other sectors.

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The prices of urea in Pakistan are half of the international market, to the benefit of our farmers. Therefore, such a deplorable response to the industry, which is one of the major contributors to national exchequer, besides saving foreign exchange is beyond comprehension.

It was repeatedly brought to the notice of concerned authorities that reduced output GST at a rate of 2 percent while maintaining the GST on inputs at higher rates (5-17 percent), resulting in massive mismatch between input and output GST on Urea (Rs 67 to 110 per bag). Thus it was requested to be addressed through reduction of GST on gas to zero percent, as the mismatch is adding to already outstanding huge refund of fertilizer industry and thus cash flow challenges for the industry.

Similarly, GST on imported Phosphoric Acid for the local manufacturers of DAP at 5 percent and Rock Phosphate at 10 percent besides Custom Duty of 5 percent led to huge mismatch between input taxes Rs 218 per bag of DAP and output Rs 100 per bag of DAP resulting in heavy refund liability for FBR and agony for the manufacturers of DAP.

It was also requested that GST on Phos Acid, Rock Phosphate (imported/locally mined), Power and Steam used for fertilizer manufacturing may also be rationalized, accordingly.

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Hence, the industry reiterated that the prevailing sales tax regime on fertilizer supply chain under the present tax laws is causing significant imbalance between input and output GST, leading to perpetual piling up of sales tax refunds of fertilizer manufacturers, who are severely suffering on account of non-payment of Subsidy amounting to Rs19.217 billion since last 3 years coupled with estimated Rs 38.152 billion outstanding sales tax refunds.

The industry informed the Finance Ministry that the fertilizer industry is one of the highest documented and tax compliant sectors and has also supported FBR’s drive for the documentation of the economy. Therefore, while all other businesses have been facilitated, the fertilizer industry is being penalised to our utter dismay.

The industry has urged the Finance Minister to take note of the anomaly of GST mismatch and proportionately reduce the GST on inputs, besides allocation of funds for pending refunds and subsidy to enable the fertilizer industry play its strategic role in national food security and economy.

Copyright Business Recorder, 2021