Fertiliser makers mull Rs100/bag hike in urea prices

LAHORE: Fertiliser industry has been mulling Rs100/bag increase in urea price over lack of government interest in resolving tax issue.

In May, fertiliser firms agreed to reduce the price of urea by Rs83/bag after the government promised resolution of the long-standing GST mismatch issues. However, no attention was paid to the problem in the budget, and the industry was considering to increase urea price by Rs100/bag ie Rs17/bag compared to May.

According to details available with The News, the fertiliser sector receivables were Rs85 billion. These include the subsidy of Rs19.2 billion from the previous tenure's of PML-N Kissan Package and about Rs65 billion on account of GST refunds. This was also a result of drop in GST from 17 to 2 percent under the Kissan Packages.

Instead of addressing industry suggestions, the Federal Board of Revenue (FBR) proposed raising GST on all fertilisers to 10 percent. However, the Cabinet turned down the proposal. Thus, no changes to the GST input or output on fertiliser were made in the proposed budget.

Industry insiders claimed that sector would continue to suffer because there “is little possibility of receiving GST reimbursement”. Hence, the industry would be forced to pass on the financial burden to the end users, ie farmers. In such a scenario, production costs and prices for agricultural products would also rise, impacting food security.

To avoid the accumulation of refund, the Fertilizer Manufactures of Pakistan Advisory Council (FMPAC) has suggested in their budget proposal that the input GST on gas, phosphoric acid, rock phosphate, power, and steam used in fertiliser manufacturing be decreased to zero percent. But the proposal was overruled by the FBR in budget-making.

The price of DAP has reached an all-time high. Farmers were avoiding DAP due to the increase in cost; something that was also witnessed during the last wheat crop. Phosphate fertiliser usage decreased by 17 percent, which affected total wheat production.

To avoid a similar situation this year, it was recommended that the government subsidises the commodity. But the lack of funds has created hurdles for the government in allocating required resources to pass on the subsidy on DAP.

FMPAC Executive Director Birg Shershah while talking to The News said that imposition of 17 percent GST on urea, would create a fiscal space of around Rs35 billion for the government, which it can use for provision of subsidy on DAP. The balanced use of fertiliser was critical for the grain’s development and targeted subsidised DAP for small farmers would enhance production.

The industry executive emphasised the importance of understanding that the notion of the fertiliser market becoming more expensive was based on “exorbitant DAP price of more than Rs10,000/bag, and not on urea prices”.

However, because urea was the most used fertiliser, the perception of expensive fertiliser due to DAP befalls on urea. “Factually, urea is now the most cost-effective fertiliser in all types of fertilisers used in Pakistan, so farmers increased its usage without understanding the concept of balanced fertiliser,” he said.

To promote balanced fertiliser use, the government should encourage the use of fertilisers other than urea. Any fall in the price of urea encourages urea smuggling and profiteering. The government should make decisions about all agricultural and productivity aspects, instead of focusing on elections and appeasement of rural voters, Shershah added.