PTI govt’s revenue to take Rs44 billion hit from GIDC reduction

GIDC applicable to fertiliser producers was cut by Rs400 per bag

ISLAMABAD: In a bid to provide relief to farmers, the government has taken a hit of Rs44 billion in tax revenue by reducing the gas infrastructure development cess (GIDC).

The government has approved reduction in GIDC by Rs400 per bag applicable to fertiliser manufacturing with the intent of passing on its impact to the farmers.

Earlier, the government had imposed GIDC of Rs300 per million British thermal units (mmbtu) and Rs150 per mmbtu on feedstock and fuel for the fertiliser players through the GIDC Act 2015.

“Urea prices will be slashed by Rs400 per bag as the GIDC reduction is contingent on decrease in urea prices,” a well-informed source at the Ministry of Industries and Production told The Express Tribune.

Moreover, the GIDC reduction would have a positive-to-neutral impact on the fertiliser manufacturing companies, said Usman Arif of Foundation Securities in a research note.

Arif added that the GIDC reduction would be positive for Fauji Fertiliser Bin Qasim (FFBL) while it would be neutral for Fauji Fertiliser Company (FFC) and Engro Fertilisers.

In 2012, the Pakistan Peoples Party (PPP) had introduced GIDC for different industries that were using gas as a source of energy or raw material for manufacturing their products. However, the GIDC Act was challenged in court where the companies obtained stay orders and stopped paying the cess.

However, the Pakistan Muslim League-Nawaz (PML-N) government introduced the GIDC Act 2015 and re-imposed the cess on different sectors. Both the governments stated that the main objective of GIDC collection was to generate funds required for the expansion of gas transmission and distribution network.

In August 2019, the Pakistan Tehreek-e-Insaf (PTI) government introduced the GIDC Amendment Act 2019 in order to settle GIDC dues but withdrew it later due to public pressure. In 2019, urea prices increased approximately by Rs210 per bag due to a rise in gas prices in July 2019 in order to meet pre-conditions for the IMF programme.

In the current scenario, any gas price hike for the fertiliser sector will increase the cost for the farmers given the inflationary pressure. The cost of living is surging while farmers’ income is declining due to lower yields of major cash crops, as was evident from cotton and rice harvests.

On the one side, the government is proposing relief measures for the farmers by reducing the GIDC while on the other hand it is taking measures which will lead to an increase of Rs600 per bag in urea prices.

A source at the Petroleum Division told The Express Tribune that the Oil and Gas Regulatory Authority (Ogra) had proposed 136% and 32% increase in gas prices for the fertiliser feedstock and fuel gas effective from January, which would lead to a rise of Rs550 per bag in urea prices.

Published in The Express Tribune, January 22^nd, 2020.

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