Change in tax regime likely to hike urea price.


Byline: Shabbir Kazmi

The decision by the Government of Pakistan (GoP) to restrict claimability of input sales tax from unregistered consumers through the Tax Laws (Second Amendment) Ordinance 2019 is expected to increase price of Urea by Rs40/Bag within the first month of 2020.

The objective of this amendment, through Presidential Ordinance, is to bring major distributors into the sales tax regime. Speaking with an industry expert it was revealed that against the sales made to unregistered distributors who make purchases of Rs10 million on monthly basis or Rs100 million on annual basis, the manufacturers would not be granted input adjustments.

Another fertilizer industry representative informed that to ensure registration of maximum people for sales tax purpose, the GoP has now introduced this penal provision. With majority of the fertilizer dealers being unregistered, this could lead to Rs40/Bag increase in urea price. It was highlighted that the distributors are reluctant to get themselves under the tax net and this impact would eventually be passed on to the farmers.

On the top of this, the GoP is also expected to make a decision on gas price increase shortly, which will also increase price of various end products. This comes at a time when inflation has hit its highest level since the incumbent government took over, inflation numbers in November 2019 reflecting a 12.7%YoY increase.

According to data released, the increase in inflation is largely due to higher food prices with nearly 35 percent of the national consumer price index comprising of food and non-alcoholic beverages. With the increase in gas prices, a significant increase in the cost of production of urea is expected. It is worth noting that any hike in urea price does not bode well in achieving food security.

Oil and Gas Regulatory Authority (OGRA) had recommended to the GoP to increase gas prices, effective...

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