‘Sales tax on fertilisers to be catastrophic’

ISLAMABAD: A 17 per cent sales tax on fertilisers will adversely affect wheat production and consequently have severe repercussions on the national economy, warned the ministry of food and agriculture. An increase in fertiliser prices would simply lead farmers to reduce consumption, and consequently lower crop yields, highlighted a ministry document available with The Express Tribune.

Imposition of sales tax on fertilisers was suggested during a meeting to review the availability of fertilisers for the Rabi season. The meeting was informed that nitrogenous fertiliser plants in the country are operating below capacity due to gas outages. If these outages continue, it will adversely impact the supply and prices of nitrogenous fertilisers.

However, if gas supply is restored and plants operate at optimal capacity, the price of a bag of nitrogenous fertiliser could drop by up to Rs50.

At present, urea fertiliser is retailing at Rs850 per bag and dealers are not keen on stocking supplies since they are expecting the prices of the nitrogenous variant to decrease as gas supplies are restored. Dealers are also sceptical about the impact of a prospective sales tax on fertilisers. Since demand picks up in the Rabi season, they are anticipating a shortage in the market despite adequate supplies.

The prices of Di-Ammonium Phosphate (DAP) fertilisers, presently retailing locally at Rs2,700 per bag, could rise by Rs400-500 per bag due to the increase in prices in international markets. Imposition of sales tax, even as low as 10 per cent, could raise the price of a DAP bag up to Rs3,500.

Published in The Express Tribune, November 10^th, 2010.