Punjab proposes abolishing sales tax on all types of fertiliser

Says subsidy should be ended; proposal likely to meet resistance from FBR

ISLAMABAD: In a bid to provide meaningful relief to the farming community in the upcoming budget, Punjab government has proposed to abolish sales tax on all kinds of fertiliser, terming the existing regimes of sales tax collection and subsidy prone to leakages.

However, getting its proposal approved will be an uphill task for the provincial government, as the Federal Board of Revenue (FBR) is not in the mood to accept the demand. Not only that, the FBR is collecting sales tax even on the subsidy amount the federal government is paying to lower the prices.



It is currently collecting Rs8 in sales tax on the subsidy amount given on a 50-kg bag of diammonium phosphate.

In the last budget, the federal government had announced a subsidy of Rs300 on a 50-kilogramme bag of DAP.

“The most efficient and cost effective way of lowering the cost of production for the farming community is by way of reduction in the GST on the fertilisers,” according to an official communiqué the provincial authorities have sent to the federal government.

The Punjab government has proposed that the federal government should completely waive off the General Sales Tax (GST) on all fertilisers. In return, it should end the subsidy. The other proposal it has given is that the rate of the GST should be set at a flat 5% for all types of fertiliser and subsidy should be abolished.

At present, except for urea fertiliser that is subject to 5% sales tax, all other types of fertilisers are liable to 17% standard GST rate.

However, the Punjab government documents revealed that the FBR collected about half of its total estimated Rs45.1 billion on account of GST from the sale of fertilisers in the last fiscal year, showing huge leakages. The sales tax collection from fertilisers stood at only Rs25.5 billion, which implies that the fertiliser companies paid only this much against Rs45.1 billion of FBR estimates.

In comparison, the cost of subsidies was Rs20 billion, according to the provincial government. It said that the federal government should adopt a mechanism that is more cost-effective for the farming community.

The Punjab government has said that the mechanism of disbursing the subsidies to farmers through the fertiliser companies has led to various complexities, which have been difficult to administer both at the provincial and federal levels.

The provincial government has also demanded clearance of pending fertiliser claims of the companies, saying any delay may carry implications for import of the commodity. In June 2016, the federal government had announced subsidy on DAP fertiliser. At that time, the prevailing price of DAP was Rs2,858 per 50 kg and the total amount of subsidy calculated per bag was Rs300. However, later on the prices started coming down and DAP was generally sold on either less than or around Rs2,558/50 kg bag.



The fertiliser industry is also supporting the demand of reduction in GST rates besides seeking immediate clearance of its subsidy claims. The fertiliser industry has warned that if the pending subsidy is not cleared, the companies will be unable to import DAP that may lead to shortage of the commodity.

Published in The Express Tribune, May 10^th, 2017.

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