FBR to cut WHT rate for sales tax registered fertiliser dealers

KARACHI: The Federal Board of Revenue (FBR) has allowed reduced rate of withholding tax at 0.25 percent for dealers of fertilisers who have sales tax registration, sources said on Tuesday.

The reduced rate may help in bringing down prices of urea by Rs8/bag and diammonium phosphate (DAP) by Rs21/bag, they said.

Sources in the FBR said this is a major relief through amendment in Income Tax Ordinance, 2001 with condition that the reduced rate of withholding tax would be available to dealers who get sales tax registration by April 11.

Prior to the amendment, a registered dealer was subject to minimum tax at 4.5 percent of the revenue when selling to a registered customer/sub-dealer with an annual turnover of more than Rs100 million. Besides, if a registered dealer makes a sale to farmer and is unable to declare farmer's CNIC/NTN details in the return form, all input tax attributable to such sales would be disallowed.

With the promulgation of Tax Laws (Amendment) Ordinance 2021, the government has decided to reduce the minimum tax rate for fertilisers dealers from 4.5 percent to 0.25 percent. The tax rate is now in line with other sectors, like cement, sugar, and edible oil.

Similarly, the advance tax rate for dealers and sub-dealers of fertilisers has been brought down from 0.7 percent to 0.25 percent as well. As a result, a benefit of Rs8/bag on urea and Rs 21/bag on DAP will be passed on to sales tax-registered dealers only.

Analysts said resolving anomaly is a positive outcome for the fertiliser value chain as the simplified system will boost government revenues from a sector that is already documented for income tax purposes. However, as most farmers are reluctant to submit their CNIC or NTN numbers at the time of purchase, the move will unnecessarily hurt the limited margins of dealers and pose a risk of increasing agricultural input costs, they said.

The concession of reduced withholding tax rate is available to the dealers who are already registered under the Sales Tax Act 1990, or those who have completed their registration within 60 days of the enforcement of the Amendment Ordinance, 2021.

All Pakistan Fertilizer Dealers Association called upon the dealers to complete their sales registration before the due date and majority of them responded positively to avail the benefit of reduced taxation.

However, some dealers were perturbed by the operational hassle of registration, while smaller dealers showed reluctance to incur the additional cost of filing returns. Further, it was reported that the dealers lacked understanding of taxation laws and were wary of further scrutiny by the authorities after filing their tax returns.