The government has constituted a committee to review the proposal of the domestic industry to impose a general sales tax (GST) or duty on imported DAP fertilizer.
The decision was made during the last meetingĀ on issues regarding DAP fertilizer convened on December 15, 2022 at the Ministry of Industries and Production under the Chairmanship of the Minister ofĀ Industries and Production.
Sources referring to the meeting told ProPakistani that the Secretary of Industries and Production apprised the forum that the Fauji Fertilizer Bin Qasim Limited (FFBL) has approached the ministry with a request that due to the exemption of output GST after Finance Bill 2022-23, FFBL being the sole manufacturer of the DAP, is at a disadvantage with reference to the importers of the DAP.
FFBL had proposed that either the GST at the input stage for FFBL may be exempted or imported DAP may be made subject to GST or duty may be imposed at the import stage of the DAP fertilizer.
FBR SecretaryĀ Customs (Tariff) informed that all fertilizers were being imported at zero percentĀ customs duty and the DAP was also being imported from China with whom Pakistan had a Free Trade Agreement. In order to raise the rate of customs duty, China must agree on the subject proposal.
Chief Sales Tax Operations FBR said since Pakistan was in the middle of the IMF program, GST would not be the preferred option. He suggested that before making the case for GST imposition or imported DAP, a review of cost, profit margins and gas subsidy of the domestically produced DAP by the FFBL should be done for making an informed decision.
Director General (Agro) Ministry of Commerce stated that the Ministry of Commerce was also in receipt of a request from the FFBL regarding permission of export of the DAP. However, he suggested that FFBL’s request needed to be considered in a holistic way as the offtake for DAP had decreased significantly. Further, the FFBL was at a disadvantage with reference to imported DAP and the prohibition of export.
Joint Secretary Finance Division stated that a thorough review of the cost of production of the FFBL was needed to ascertain the request made by the FFBL. Imposing GST on the imported DAP or granting exemption of the GST to the FFBL appears to be a unit-specific policy.
Minister ofĀ Ā Industries and Production stated that the FFBL was the sole producerĀ of the DAP in Pakistan and in fact constituted domesticĀ industry and we need to take into considerationĀ the genuine concerns of the domestic industry, though it was also dependent on imported raw materialĀ (Phos Acid).
However, the FFBL was inefficientĀ as imported DAP was cheaper. As the international prices of the imported DAP had fallen lately it had pushed FFBL/FFC to sell the DAP at import parity price. In these circumstances, the imposition of the GST on imported DAP might not be feasible.
At the end of the meeting, it was decided that a sub-committee under the Chair of joint SecretaryĀ (PSD),Ā Industries and Production with members from the Finance Division, Commerce Division, NationalĀ Food Security and the FBR may be constituted with the following terms of reference (TORs):
- Determine the cost of production of the FFBL against the imported DAP.
- Ā Assessment of why imported DAP is cheaper in comparison to locally produced DAP.
- Ā Determination of volume/value of raw material used in the production of 50kg bag of DAP.
- Ā The proportion of subsidy in gas in the production of 50kg bag of the DAP.
