Urea price expected to fall Rs40/bag in July

KARACHI: Urea prices are expected fall Rs40/bag from the next fiscal year as the government announced reduction in sales tax on fertiliser in the budget 2018/19, analysts said on Monday.

The cut in sales tax would also bring down prices of other chemical and fertiliser like diammonium phosphate by Rs39 to Rs70/bag.

Last week, government announced the budget in which several measures were announced to strengthen the farm production and help achieve agriculture sector’s growth target of 3.8 percent for the new fiscal year as against around 3.8 percent in the outgoing fiscal year of 2017/18.

“From 1st July there will be a reduced uniform GST (general sales tax) rate of two percent on all fertilisers,” Finance Minister Miftah Ismail said in budget speech. “This will eliminate distortions in tax regime, further reduce fertiliser prices and promote use of balanced nutrients.”

Analysts said reduction in sales tax would resolve cash flow issues of fertilisers manufacturers. It is expected to increase agriculture output, and help in decreasing prices of vegetable and fruits, they added.

Urea off-take soared 44 percent year on year to 1.25 million tons during the January-March period as dealers were building up inventory on the prospect of a price hike after a possible subsidy cut in the new budget.

Government has been giving subsidy to farmers on buying of fertiliser, which is a key agriculture input, for the last couple of years. Last year, it, however, replaced cash subsidy of Rs300/bag with reduced sales tax of Rs100/bag. National Fertilizer Development Centre’s data showed that sales of DAP increased 17 percent to 365,000 tons during the first quarter of the current calendar year.

The country is self-sufficient in fertiliser production with an annual capacity of six million tons little over the local demand. Yet, the government subsidises prices of fertiliser to help farmers sustain the impact of production cost.