The government is likely to replace current taxation mechanism on fertilizer sector by imposing flat tax of 2 per cent which will slash prices of urea but increase prices of other fertilizers, well informed sources in Ministry of National Food Security and Research told Business Recorder. Federal Board of Revenue (FBR) and Ministry of National Food Security and Research have started consultations to review volume of tax on fertilizers.
Presently, the base of price of urea is Rs 1333 per bag whereas it market price is Rs 1365 per bag as on November 9, 2017. However, with the imposition of different uniform tax rates, the price of urea will be Rs 1411 per bag at 5.83 per cent tax, Rs 1400 per bag at 5 per cent tax and Rs 1360 at 2 per cent uniform tax. This shows the price of urea will be reduced with the imposition of a uniform tax.
The base price of diammonium phosphate (DAP) was Rs 2388 per bag and its market price was Rs 2704 per bag as on last month. The new price of DAP with a 5.83 per cent tax will be Rs 2527 per bag, Rs 2507 per bag at tax rate of 5 per cent and Rs 2436 per bag at uniform tax rate of 2 per cent. This implies DAP price will increase by 2 per cent.
The sources said the base price of nitrophos (NP) fertilizer will also increase to Rs 1737 per bag from Rs 1703 per bag. The base price of nitrogen, phosphate and potash (N-P-K) fertilizer will increase from Rs 2293 per bag to Rs 2340 per bag, whereas base price of single superphosphate (SSP) will increase from Rs 870 per bag to Rs 887 per bag. The base price of calcium ammonium nitrate (CAN) will increase to Rs 1114 per bag from Rs 1092 per bag.
The FBR is of the view that it was granting subsidy and decreasing taxes on fertilizer, which need to be reviewed to improve tax collection. Last year, the cut in taxes was 5 per cent on output of urea fertilizer whereas Rs 100 per bag was fixed on DAP. However, on other fertilizers, it was fixed at Rs 32 per bag, Rs 10 per bag and Rs 20 per bag due to which FBR was facing a shortfall on estimated collection in taxes on fertilizer sector.
"The FBR is of the view that with the imposition of a uniform tax rate, projected deficit in collection will be minimized," the sources said, adding that with the imposition of flat rate on different fertilizers, the price of urea will decrease but prices of other fertilizers will increase. Presently, tax on urea is 5 per cent whereas tax on DAP's input and output was 100 per cent. However, tax has been calculated on "P" contents of other fertilizers.
The purpose of proposed flat rate of 2 per cent is to give the impression that urea prices have been further brought down and at the same time FBR will bridge the tax shortfall. However, at the same time, prices of other fertilizers will increase, said one of the stakeholders.
Urea companies are of the view that they pay Rs 83 to Rs 87 per bag GST as input tax on fertilizer but will collect Rs 28 per bag if GST is revised to Rs 2 per cent as flat rate which implies refund will be Rs 50 per bag. Currently, refund of Rs 20 billion of fertilizer industry is already stuck with FBR. There was an implicit subsidy of Rs 78 billion in the form of cheap feed gas to fertilizer industry during 2015-16.
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