Industry barred from tax refund on urea sales to unregistered dealers

Terms it arbitrary move that will adversely impact fertiliser sector, farmers

KARACHI: The federal government has promulgated an ordinance that bars fertiliser companies from claiming input sales tax refunds on urea sales to unregistered dealers, prompting an immediate reaction from the industry that has termed it an arbitrary move with serious implications for the fertiliser sector.

The Federal Board of Revenue (FBR) put the presidential ordinance, which made changes to the tax laws, on its website on January 2, according to which the ordinance had been notified on December 28, 2019, said Fertiliser Manufacturers of Pakistan Advisory Council Executive Director Sher Shah Malik.

The ordinance restricts fertiliser companies from claiming input sales tax on the retail sale of urea to the unregistered dealers.

The law reads, "A registered manufacturer shall make all taxable supplies to a person who has obtained registration under this Act …… failing which the supplier shall not be entitled to claim credit adjustment or deduction of the input tax as attributable to such excess supplies to the unregistered person".

Urea sales rise 19% in March 2019

During fertiliser production, the industry bears sales tax input cost on materials like stationery, bags, etc, which it claims from the government so as not to burden farmers.

The input cost is estimated at Rs125 on each 50kg bag of urea. At present, the urea bag is priced around Rs2,000. The government charges 2% output GST, which comes to around Rs40 per bag.

When input GST and output GST is adjusted, it gives a difference of Rs85, which the government refunds to the industry.

"The government has a good intention to register the dealers, however, this decision will have an adverse impact on the industry as 99% of the dealers are unregistered," said Malik while talking to The Express Tribune.

"This is an arbitrary decision; we are in democracy in which stakeholders are supposed to be taken into confidence before any decision," he said. "Now, we are left with two options either to stop sales of fertiliser products or burden the consumers with the addition of Rs85 to the price."

For the time being, the industry decided to opt for a halt to sales until the government reviewed its decision, he said. "On Monday, we will meet government officials and are hopeful that they will understand our point of view."

Malik said contrary to the government's claim of promoting ease of doing business, the new ordinance may have serious implications for the fertiliser industry as well as farmers as the entire supply chain was feared to be disrupted since the registration of dealers was expected to take considerable time.

Therefore, "the FBR has been requested to allow a reasonable time to the dealers to get themselves registered", he said.

Published in The Express Tribune, January 4^th, 2020.

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