Fertiliser sector claims GST to pile up refund claims

LAHORE: The government is considering flat two percent general sales tax (GST) on all types of fertilisers, which could result in huge refund claims, industry sources said on Friday.

Currently, the varying rates are applied on different products, ie, five per cent on urea, Rs100/DAP bag, Rs168/NP bag, and Rs98/CAN bag.

Prime Minister Shahid Khaqan Abbasi had recently constituted a committee under Food Security and Research Minister Sikandar Bosan, which recommended a flat two percent rate on all fertilisers to reduce the burden on farmers.

However, fertiliser manufacturers pointed out that the restructuring would be welcomed, provided it was matched by similar reductions on the input side, officials said.

They pointed out the piled up refund claims totalling Rs13 billion due to the mismatched GST on input against the output cost, ie, on urea the five percent GST results in disparity of Rs114/bag against output of Rs70/bag, which is Rs115/bag in DAP. The situation was creating cash flow problems for the fertiliser industry, they added.

Previously, it has been brought to the attention of concerned ministries and relevant authorities to consider aligning the fertiliser industry (for domestic sales) along the lines of the textile industry and four other sectors where there is zero percent sales tax on all industrial inputs.

The officials said the mismatched GST should be addressed through zero-rate on natural gas (feed and fuel), import of LNG and supply of RLNG as feed and fuel, phosphoric acid (for DAP), rock phosphate (for phosphatic fertilisers), steam and power.

Further, to compensate for the higher cost of production (based on RLNG) the output GST should be reduced to zero percent on fertilisers produced using RLNG, for the benefit of the farmers. All fertiliser import should also be subjected to zero-rated sales tax regime at the import stage, they suggested.