Urea-makers threaten shutdown on financial crunch

ISLAMABAD: The fertiliser-makers on Wednesday threatened to shut down urea production amid deepening financial crunch, especially after the government’s failure to settle the industry’s sales tax and subsidy receivables issues in Budget 2022-23.

To add to the fertiliser industry’s woes, the GST on the gas has also doubled due to high RLNG cost. “We are at cash-negative now, especially the RLNG-based plants due to high RNLG prices and high GST,” an industry official said during a meeting of the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) with the Federal Minister for Finance and Revenue Miftah Ismail.

Conveying their apprehensions to the finance minister, the industry officials said they were unable to run urea plants due to higher costs, non-refund of near Rs65 billion in sales tax receivables, and another Rs19 billion in subsidy receivables against the government.

“Earlier we were getting the RLNG at around Rs2,000/mmBtu and now it has increased to near Rs5000/mmBtu. We get 20 percent fuel gas and 80 percent feed gas,” one industry official said.

“The GST on fuel is being charged 17 percent while on feed gas, it is 5 percent. In absolute terms, our GST has increased substantially. Earlier, our GST amount on gas (feed and fuel) was Rs148/mmBtu and now it has increased to Rs450/mmBtu. Our demand is that the GST is to be charged at the rate of local gas instead of RLNG.”

“GST refund of Rs230/bag in January 2022 has now increased to Rs430/bag due to a massive increase in RLNG prices and devaluation affecting the sustainability of the production of plants. Input GST for RLNG plants should be charged at cabinet approved rate of Rs839/bag instead of the full RLNG price,” he said.

Representatives of Engro Fertilizer said if the petroleum policy issue was not addressed, they would not be able to run their plant. “We should be given gas under fertiliser policy,” they said.

Another executive of the sector who attended the meeting said, “The finance minister has said that we would exempt urea from sales tax, which is currently 2 percent.” But, the representative said that with the exemption of output from sales tax, the input sales tax becomes part of the production cost, so the plants will have to pass it on to the consumers and the per bag price can increase by up to Rs70 to 100. He said that the input GST rate was much higher than the output GST.