WITH Rs16.7 billion subsidy held up by the government, urea manufacturers are threatening to stop sales. This could create economic and social resentment in rural areas.

The subsidy regime, which generated these dues, ended in June when the government made tax adjustment to keep fertiliser prices low.

According to industry’s claims, the government owes Engro Fertilisers some Rs6.7bn, Fauji Fertiliser Rs6bn and Fatima Fertiliser Rs4bn.

The industry says it can no longer sustain these dues, and that its financial viability would remain volatile and the fertiliser market unstable unless the government pays up.

The accumulation of dues has a background rooted in the typical procedural hiccups of officialdom. The government announced the subsidy in the previous budget, setting aside Rs17.16bn to keep urea prices at Rs1,400 per bag.

“Governments are only interested in political mileage, and the word ‘subsidy’ is best suited to it”

This brought down prices by Rs390 on a bag, including a direct subsidy of Rs156, Rs184 relief coming from a cut in general sales tax (GST) from 17 to five per cent and Rs50 concession by the manufacturers.

The reduction of Rs156 per bag, which was expected to cost Rs17.16bn, was to be equally shared by federal and the provincial governments.

Out of the Rs8.58bn provincial share, Punjab was expected to contribute Rs6.26bn (73pc), Sindh Rs1.63bn (19pc), Khyber Pakhtunkhwa Rs420 million (5pc) and Balochistan Rs250m (3pc).

The trouble started when Sindh and KP — run by PPP and Pakistan Tehreek-i-Insaf, respectively — refused to be part of the new subsidy regime to avoid contributing towards political mileage the to PML-N running the federal government.

KP refused to pay its share because it never agreed in the first place and also did not authorise the federal government to deduct its share at source. Sindh also stopped disbursing the subsidy and verifying manufacturers’ claims of sales.

So, with two provinces almost out, Punjab also started going slow on the verification of manufacturers’ claims for money and the disbursals began to clog up.

The original notification issued by the government clearly stated the disbursal mechanism. It said the subsidy shall be paid after the sale of fertiliser on the basis of sales tax invoice and sales tax returns submitted to the Federal Board of Revenue (FBR) by the manufacturers.

The manufacturers shall submit invoice-wise details of the subsidised fertilisers sold to the FBR, specifying name of buyers, national tax or computerised national identity card number, description, number of bags sold and other relevant information.

The fertiliser companies shall also forward this information electronically, bifurcating the information on a provincial basis.

The FBR, after verifying the records, shall forward claims to the State Bank of Pakistan within 15 days under intimation to the Ministry of National Food Security and Research.

The manufacturers were then supposed to submit claims on a monthly basis and the SBP was to ensure payment of due subsidy claims within seven working days.

However, the monitoring mechanism, where provinces were cast in the role of monitors with the Ministry of National Food Security and Research leading them, created confusion and delays. Both feared disbursal of billions of rupees on their recommendations, which could cause subsequent questions, and kept deflecting responsibility on each other for payment and its responsibility, taking the system down.

“The industry is in deep trouble for this carryover of dues,” said an industry official, who did not want to be named. The matter was taken up at all relevant forums, but the buck didn’t stop anywhere, he said.

However, it is also believed that a large share of this subsidy never reaches small farmers. Manufacturers eat up a large chunk, almost a third in some cases.

The food ministry insists that provinces must submit their assessment of sale and price to create the basis for subsidy recommendation. On the other hand, the provinces argue they couldn’t do so without going through the relevant record that manufacturers provide with their claims to the ministry.

The ministry should do it on the basis of verifiable sale and tax record, rather than holding provinces responsible. When matter was taken up with the Finance Division, it said the food ministry had the money and authority and the division should only be approached if the ministry ran out of money.

The industry is thus running among them, only to be disappointed and absorbing additional cost of sustaining this loss, the official says.

Khalid Mehmood Khokhar, the president of Pakistan Kissan Ittehad, believes that governments are only interested in political mileage, and the word ‘subsidy’ is best suited to it. Otherwise, they can simplify the system by removing taxes and bringing the cost down, without getting involved in cash transfers and its complicated results.

If the industry comes under any kind of pressure, it inevitably passes on to farmers — whether declared or undeclared. The industry is now getting pinched and so do farmers, only because of wrong political preferences, he says.

Published in Dawn, The Business and Finance Weekly, July 24th, 2017

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