Fertilizer industry has called for immediate settlement of all pending subsidy claims worth Rs20.67 billion of the sector through allocation in the coming budget 2019-2020. It also demanded to expedite the outstanding tax refunds which at present stands at Rs21.18 billion to help improve cash flow of the industry.
The sector has also demanded reducing the General Sales Tax (GST) to zero percent on all industrial inputs including (but not limiting to) feed and fuel gas for all fertilizer products. GST on import of LNG and supply of RLNG should also be reduced to zero percent, said the budget proposals of the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC).
The Council claimed that there is a big mismatch of input and output GST exists on Urea bags. Input GST on Urea is Rs109 per bag which includes natural gas (Rs68 per bag) based on 5 percent GST on feed gas plus 17 percent GST on fuel gas, and Rs41 as input GST on other items. Whereas, output GST is Rs34 per bag (evaluated at 2 percent) thus a huge mismatch of input and output GST exists. Similar is the case with Phosphatic fertilizers, the budget proposals add.
FMPAC appreciated the relief in terms of reduction of GIDC being considered by the Government thus leading to rationalization of cost of production to some extent. The proposals said industry is confronted with serious challenges in terms of sustainability of the business due to delayed subsidy payments, heavy taxation, mismatching input/output taxes and resultant financial difficulties, compounded by the gas curtailments and higher cost of production for SNGPL based plants. Recession in this strategic industry can trigger serious issues for the agriculture sector and the downstream industries, threatening national food security and resultant serious socio-economic consequences for the Country, the letter added.
The proposals said that prices of LNG/RLNG are very high and also subjected to 12% GST, in order to facilitate the fertilizer industry, it should also be brought down to zero percent with no revenue loss to the government. The industry further said that the GST on local rock being procured is charged at 17 percent which is an anomaly/discrimination so SRO C No. S/93-STB/2018/89721-R dated 23-07-2018 Section 13 (iii) shall also be applicable to local Phosphate rock and any amendment to zero percent shall also be applicable to local rock. Similarly, sulphur, being a regular input raw material for SSP manufacturing shall also be included in this low input GST structure.
Demanding sales tax refunds, the industry urged the government to place fertilizer sector in list of top priority industries alongside exporters for receiving sales tax refunds given their key role in developing agricultural economy.
The industry drawing the attention of the government towards FTR (Final Tax Regime) on import of DAP and other fertilizer, urged that fertilizer import should also be brought under normal tax regime in line with the Fertilizer policy, 2001. Additional sales tax on import of DAP and other fertilizer by manufacturers be abolished to improve availability/affordability of phosphatic fertilizer in the country. Over 1.5 million ton per year DAP demand is covered through imports, the proposals added.
The proposals further said that duty structure and sales tax rates in respect of fertilizer micro-nutrients should be revised and aligned with rates for other fertilizer imports. Gas compression infrastructure expenses made by fertilizer industry should be adjusted/ incorporated in determination of notified gas price for Mari gas based and other fertilizer plants. Gas compression equipment and machinery should be fully exempted from import taxes and duties to rectify the inequity in laws and to support sustainability of fertilizer industry.
The industry also demanded specific exclusion to rental of machinery for agricultural purposes let out to farmers under R&D activities. Farmers' education expenses should be treated as R&D expenses for taxation purposes and should attract tax credit.
The industry also demanded that a special fertilizer cell is created in the relevant tax offices. Further, expeditious refund system as available to export sector and five zero rated sector should also be provided to fertilizer sector. As STRIVE mechanism exist, that allows automatic claim of input tax invoices, therefore, verification process should be streamlined and reduced accordingly. Any observation can be sorted out through post refund audit as already available in rule 36 of Sales Tax Refund Rules, 2006, the proposals added.
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