The Ministry of Finance has reportedly started working on reducing price of urea by 20 percent or Rs 350 per bag in federal budget 2016-17 in the light of directions given by Prime Minister Nawaz Sharif, well-informed sources told Business Recorder. The reduction in urea prices will be made possible by slashing percentage of GST on domestic urea and Gas Infrastructure Development Cess (GIDC) collection from fertiliser plants, the sources said, adding that domestic urea manufacturers are also being asked to contribute to this effect.
On Tuesday, the Finance Ministry deliberated on different options at a meeting with different public and private sector stakeholders. The sources said domestic urea manufactures have assured the government that they were ready to contribute to lowering the price of urea despite the fact that the domestic industry was in trouble because of low sales due to farmers' worsened financial condition.
On one hand the government extended subsidy of Rs 20 billion on phosphate and on the other price of gas feed was increased from Rs 123 to Rs 200 MMCFD which implies whatever relief was given to the farmers in phosphate sales was taken right back by increasing price of feed gas which is ultimately passed on to the farmers . Farmers of Punjab recently held protest demonstrations and sit-ins in Lahore against the policies of the incumbent government, the sources said, adding that Chief Minister Punjab Mian Shahbaz Sharif who is currently in London to be with the Prime Minister during his scheduled open heart surgery requested the Prime Minister to extend a special package for farmers - a request that sources said has been accepted.
"Whatever the relief government announces, domestic industry will pass it on to the farmers," said a representative of one of the urea manufacturers. The impact of taxation on one bag of urea fertiliser is around Rs 700-750.
According to the Ministry of National Food Security and Research, currently, the urea fertiliser prices are very high due to imposition of number of taxes including GST at the rate of 17 per cent and GIDC. The overall tax quantum of both taxes is (i) GST- Rs 32.05 billion and (ii) GIDC- Rs 41.04 billion.
Ministry of National Food Security and Research estimates that if GST and GIDC are removed then prices of 50 kg urea bag will be reduced to around Rs 700 resulting in substantial reduction in cost of farm production - from Rs 1850 at present to Rs 1150 per 50 kg bag.
However, insiders in Finance Ministry argue that maximum reduction in urea prices will be around Rs 350 or 20 per cent per bag which implies that price will be brought down from Rs 1850 to Rs 1500 per bag. The sources said Ministries of Finance and National Food Security and Research have jointly developed a proposal to reduce urea prices in view of sharp decline in the international urea prices.
Ministry of National Food Security and Research has also proposed that the current subsidy on phosphate fertiliser to the tune of Rs 20 billion on 50 per cent share basis picked up by the federal and provincial governments should continue in the forthcoming budget. It has also proposed that GST on Di-Ammonia Phosphate (DAP) and other fertilisers with an estimated impact of Rs 14.4 billion and Rs 6.80 billion respectively may be removed.