close
Friday March 29, 2024

Fertiliser-makers seek zero-rated GST on gas, settlement of refunds

By Jawwad Rizvi
January 23, 2019

LAHORE: Fertiliser industry on Tuesday demanded zero-rating of general sales tax (GST) on natural gas/re-gasified liquefied natural gas (RLNG), both for feedstock and fuel to ease the delta (difference) between input and output GST.

This demand was raised by the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) in a letter written to the Adviser to the Prime Minister for Commerce, textile, industries, production and investment Abdur Razzaq Dawood.

The FMPAC also called on the government for paying special attention to the settlement of massive existing sales tax refunds awaiting disbursement by the fertiliser manufacturers.

The government is currently restructuring the duties and sales tax on the export-oriented segment of industry.

The FMPAC stated that the fertiliser sector was saving substantial amount of foreign exchange through import substitution, besides making significant contribution to the government’s revenue collection and providing fertilisers to the farmers at prices much lower than international market.

“Therefore, the fertiliser industry would like to bring to your kind notice the mismatch between input and output GST caused by the revision in tax laws in relation to all locally manufactured and imported fertilisers, in 2018-19 budget,” the FMPAC said in its letter to commerce adviser.

It said amendments in tax laws had created a significant imbalance, piling up refundable, adjustable, and receivables of fertiliser manufacturers, which were already suffering losses because of nonpayment of subsidy over the last two years. “Moreover, imposition of minimum tax regime on import of fertiliser even by manufacturers resulted in incremental tax burden leading to higher costs and additional burden on the farmers,” the letter said.

The FMPAC further said the Finance Act 2018 reduced the rate of output GST on sale of urea from 5 percent to 2 percent but no corresponding adjustment was made in the input tax rates, which were maintained at 5 percent to 17 percent, which led to a significant mismatch by triggering considerable amount of unadjusted sales tax.

“The Industry is currently paying input tax of around Rs109/bag of urea, which is much in excess of the output GST of Rs34/bag resulting in GST refund/adjustment of Rs75/bag. Similar mismatch exists in case of other locally produced fertiliser products as well,” the letter stated.

The fertiliser-makers body said the massive mismatch explained above between input and output taxes was adding to already outstanding huge refund of fertiliser industry almost Rs8 billion/annum, compounding cash flow challenges for the industry.

“The reduced output GST at flat rate of 2 percent, while maintaining the GST on Phosphoric Acid for the sector at 5 percent and Rock Phosphate at 10 percent, besides custom duty of 5 percent (3+2 additional) has caused a wide mismatch between input taxes (Rs209/bag of DAP) and output (Rs70/bag of DAP) leading to heavy refund liability for tax authorities and agony for the manufacturers,” it said. The letter said similar mismatch existed in case of NP (Nitrogen Phosphate), as well, adding, moreover, lower rate of GST on finished goods may induce unnecessary imports at the cost of domestic industry besides negatively impacting foreign exchange reserves and trade deficit.

The FMPAC in its letter urged the government the gap between input and output GST of DAP and NP may be addressed through zero-based GST on all industrial inputs especially Phosphoric Acid, Rock Phosphate, and commensurate relief on steam & power used for manufacturing DAP and related products.

The FMPAC argued that through Finance Act 2017, fertiliser imports by fertiliser manufacturers were imposed under minimum tax regime resulting in incremental tax burden on whole agricultural value chain.

“The Finance Act 2018-2019 sought to bring back some protection to imports (including fertiliser manufacturers) through substitution of final tax regime (FTR) to Minimum Tax Regime (MTR) vide insertion of clause 148 (8)(a) to the Income Tax Ordinance, 2001,” the fertiliser industry panel wrote in the letter. However, it said this respective clause capped the tax liability to a minimum of 5 percent of import value, thereby effectively maintaining the same tax position that was applicable under the previous budget (i.e. FTR at 5.5 percent of import value).

“Further, Sales Tax at 3 percent on import of DAP and other fertilisers is yet another issue. This tax is non-refundable and adjustment is also an issue as output GST is less than that of input GST and Additional Sales Tax taken together,” the advisory council said.

The FMPAC called on the government that further Sales Tax on import of DAP and other fertiliser by manufacturers be abolished to improve availability/affordability of phosphate fertiliser in the country.