Reaction to budget: Fertiliser industry fears more accumulation of refund claims

Published: May 2, 2018
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Urges govt to remove sales tax from feedstock supply
PHOTO: FILE

Urges govt to remove sales tax from feedstock supply PHOTO: FILE

ISLAMABAD: The Fertiliser Manufacturers of Pakistan Advisory Council has voiced concern over new budget proposals for the fertiliser industry and the mismatch between input and output taxes that has led to accumulation of huge refund claims.

“We would like to bring to your notice some of the anomalies caused by restructuring of the GST (general sales tax) on all fertiliser products and the resultant financial impact for the manufacturers, who are already suffering losses because of no payment of subsidy over the past two years,” said Council’s Executive Director Brigadier (Retired) Sher Shah Malik in a letter to the Federal Board of Revenue (FBR) chairman.

He was of the view that the new budget proposals, in spite of 5% reduction in feedstock tax, would lead to a massive mismatch between input and output taxes, resulting in huge refund liability for the FBR and cash flow challenges for the industry.

“Such a wide difference will encourage unnecessary imports of finished goods at the cost of domestic industry,” he cautioned.

While pointing out major anomalies, Malik said the revised 2% sales tax or Rs28 per bag of urea, collected by the industry on behalf of the government, against payment of Rs98 per bag in sales tax on inputs like gas and others would result in swelling of refund claims. The refund bill would be around Rs8 billion per annum at Rs70 per bag versus the existing Rs53 per bag, which was already a source of concern, he said.

He emphasised that sales tax on gas be reduced to zero in case of feedstock (raw material) and 5% in case of fuel to reduce the gap between input and output taxes. Similarly, according to Malik, 5% sales tax on phosphoric acid for the fertiliser sector and 17% on rock phosphate besides 5% customs duty against 2% sales tax on output would also lead to heavy refund liability for the FBR and agony for the fertiliser manufacturers.

Moreover, he pointed out, the lower sales tax on finished goods may encourage imports at the cost of domestic industry besides negatively impacting foreign exchange reserves and trade deficit.“Therefore, the gap between input and output taxes should be addressed through zero sales tax on phosphoric acid and rock phosphate,” he said.

Published in The Express Tribune, May 2nd, 2018.

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