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August 8, 2020

Fertilizer sector getting untargeted subsidies of Rs148b

Peshawar

August 8, 2020

ISLAMABAD: The fertilizer sector has been obtaining untargeted subsidies/concessions to the tune of Rs148 billion during the current fiscal year, leaving no other option before the government but to abandon this untargeted mechanism.

After cash bleeding power sector, the fertilizer sector is the second in the list where subsidies/concession of major chunk are being provided at the cost of national exchequer and on the name of farmers but its irony that billions of rupees are being utilised without placing any targeted mechanism. Out of total subsidy/concession of Rs148 billion provided to fertilizer sector every year, the government documents showed only Rs6 billion subsidy provided to two plants only through budget documents.

With approval of Prime Minister Imran Khan, Ministry of Finance has established and notified Subsidies Cell under supervision of Dr Waqar Masood and this high-powered Cell had already become operational.

Official documents and background interviews with top official of government confirmed to The News on Thursday that the fertilizer sector was getting cross feed subsidy to the tune of Rs62 billion as it is the biggest head of the subsidy amount in the current fiscal year. It is untargeted subsidy being provided to the fertilizer sector.

The second major concession being enjoyed by powerful fertilizer sector is in shape of reduced GST rate as standard GST rate stands at 17 percent but the fertilizer sector is paying special rate of 2 percent only. The reduced GST rate from 17 to 2 percent has been causing heavy revenue losses to the tune of Rs35 billion on per annum basis.

Thirdly, the reduced rate of GIDC has been causing revenue loss to the tune of Rs45 billion as again this concession is meant without any targeted mechanism. The ECC had granted approval for operation of two plants (Engro and Fatima Fertilizer) with provision of direct subsidy to the tune of Rs6 billion on per annum basis.

The incumbent government has been contemplating upon different options to do away this untargeted fertilizer sector subsidies/concessions and first option under consideration is ensure direct transfer of subsidy to farmers after developing data base. The second option is to deregulate the fertilizer sector by allowing import and export and the government will only be responsible to ensure strategic reserves so that it could intervene into market if some elements tried to distort the market mechanism.

Third option will be withdrawal of concession on GST and subsidized supply of gas but the problem will arise related to GIDC that is subjudice matter before the courts.

The government has placed another set of restructuring plan before the Subsidy Cell as they are considering for introducing price regulatory framework in order to regulate the pricing mechanism. In such scenario, the existing concessions and subsidies would be kept intact.