KARACHI: Fertiliser dealers on Wednesday said that they cannot work with manufacturers under the prevalent tax regime after they were asked to register with the tax authorities for sales tax purposes.

All Pakistan Fertiliser Dealers Association (APFDA) issued notices to fertiliser manufacturers threatening discontinuation of business activities with them.

Fertiliser manufacturers have been persuading dealers to get registered for sales tax purposes, because of the negative impact of penalties imposed on manufacturers selling goods to unregistered dealers.

The APFDA had informed manufacturers that out of 5,000 dealers, around 100 are registered with the sales tax while majority of them are income tax filers and hold national tax numbers.

The association said dealers are unregistered because of serious anomalies in current tax laws. On registration, a dealer is subject to minimum withholding tax of four to 4.5 per cent of his revenue on sale to a registered person representing three times of his own margin.

On the other hand, cement, sugar, cigarettes and other fast-moving goods manufacturers’ dealers are taxed at nominal rates of 0.25pc. This lower rate of withholding tax has worked as great incentive in getting these dealers registered.

The industry’s end consumers are farmers and sale by a registered dealer to a farmer results in his cost being increased by 100pc of his current margin, the association pointed out.

Fertiliser industry operates with a simple value chain where dealers operate on very limited margins -- 2-3pc of sale price to avoid passing on the burden to end users i.e. farmers. Such heavy cost implications would only result in increase in agriculture input costs ultimately leading to higher food prices and inflation.

The APFDA also raised the sales tax registration issue with the Ministry of Food Security and Research saying that dealers have been running from pillar to post to streamline this tax discrimination but no one is listening to them.

Therefore, they have no option but to wrap up their business, they added.

Fertiliser manufacturers, importers, dealers and farmers have expressed strong concern over the recent provisions of section 21(q) of the Income Tax Ordinance inserted through Finance Act 2020 coupled with provisions of section 73(4) of Sales Tax Act, which penalise those selling goods to unregistered dealers.

Fertiliser Manufacturers of Pakistan Advisory Council (FMPAC) Executive Director Brig Sher Shah Malik, in a statement, said almost all dealers are active income tax filers and are subject to minimum tax regime under section 113 of the Income Tax Ordinance.

Tax is already being withheld by commercial importers at 0.7pc of sale price for income tax filers. For non-filers there is already a higher tax deduction of 1.4pc.

Published in Dawn, July 23rd, 2020