The Minister for Finance,

Islamic Republic of Pakistan,

Islamabad

Sub:Sales Tax on Fertilizers

Dear Sir,

1.Effective March 16, 2011 the exemption from levy of Sales Tax under the Sales Tax Act, 1990 on supply of Fertilizers has been withdrawn through SRO 299(I)/2011 dated March 15, 2011by rescinding the SRO 535(I)/2008 dated June 11, 2008.

2.In Pakistan Fertilizer is manufactured by nine (9) manufactures, namely Daud Harcules Chemicals Limited, Fauji Fertilizers Company Limited, Engro Fertilizers Limited, Agri Tech Limited, Pakarab Fertilizers Limited, Fatima Fertilizers Company Limited, Hazara Phosphate Fertilizers (Pvt) Limited, Suraj Fertilizer Industries (Pvt) Limited and Layl Pur Chemicals & Fertilizers (Pvt) Limited.

3.In addition Fertilizer is also imported by five (5) importers namely Chawala International, United Agro Chemicals, Pacific Exim (Pvt) Ltd, Coral Trading Limited and Jaffar Brothers Limited.

4.These manufactures and importers have their authorized dealers/distributors through out the country through whom the Fertilizer is sold to the end consumers (Farmers).

5.The data gathered by the association in respect of Fertilizer Manufactured and sold through the dealers/distributors is as under:

No Of Dealers Active/Dormant / 13,149
Sales Tax Registered Dealer / 51
NTN Holder Dealers / 4,116
Others/Non Filers / 8,982
Installed Capacity/Production In MT for 2011 / 9,603,367
Production In MT for 2011 / 8,833,367
Sales for the Year 2011 (QTY - MT) / 8,833,367
Sales for the Year 2011 (AMOUNT) / 323,520,000,000
Sales Value Exclusive Sales Tax / 278,896,500,000
Sales Tax / 44,623,500,000
Dealer/distributor Margin / 3,448,000,000
Note: The Actual Number of dealers/distributors is approximately 5,000 due to multipledealership of more than one manufacturer.

6.The dealers/distributors (approximately 5,000) throughout the country are located both in urban and rural areas. All these dealers/distributors are liable to be registered under the Sales Tax Act, 1990 with effect from March 16, 2011. However, as per information gathered by us not more than 51 dealers/distributors have got them self registered under the Sales Tax Act, 1990.

7.As a result the entire sector (dealers/distributors of Fertilizer) is non-compliant as to their obligations under the Sales Tax Act, 1990 except for few as stated above or against whom the Inland Revenue Department has started statutory proceedings.

8.We append below few relevant facts for your kind consideration:

(a)The maximum retail price of the fertilizers is fixed by the manufacturers and the dealers/distributors are obliged to sale the fertilizer at these suggested prices in view of attached notifications of all the Provincial Governments.

(b)Resultantly, the fertilizer is sold to the end consumers at the retail price fixedby the respective manufacturers.

(c)In fact, the margin of the dealer/distributor of fertilizer is fixed at Rs. 15 to 20 per bag irrespective of the sale price.

(d)The business of the dealers/distributors of the fertilizers is of high volume/turnover with a very low percentage of gross margins. Normally, the gross margin on average is around 1%.

(e)According to the above summarized data, the annual Sales Tax Liability (difference of out-put and in-put tax) of the approximately 5,000 dealers/distributors of fertilizers in all comes to around Rs. 475,580,000 and on average per dealer/distributor this comes to Rs. 95,117 annually.

(f)On the other hand the cost to maintain the records required for Sales Tax purposes and the legal expenses for engaging a tax consultant on average per dealer/distributor will be not less than Rs. 150,000 annually.

9.At present following issues are being faced by the dealers/distributors of Fertilizer:

(a)Payment of Sales Tax by un-registered dealers/distributors including input tax credit (being holders of sales tax invoices but not registered), default surcharge and penalties for the period commencing from March 16, 2011 (i.e., from the date of withdrawal of exemption) to June 30, 2012; and

(b)The cost of complying with the Sales Tax Law vis-à-vis the small amount of Sales Tax involved.

10.We are not seeking for an exemption of Sales Tax on Fertilizer but earnestly believe that there is a need for an alternate arrangement for payment of Sales Tax on Fertilizer as under:

(a)Effective March 16, 2011 to June 30, 2012:

(i)All un-registered dealers to get them self registered by 31st May, 2012;

(ii)Sales Tax should be charged at the rate of 0.10% of the retail price, without any input tax credit, for the period March 16, 2011 to June 30, 2012 on all dealers/distributors who get themselves registered by 31st May, 2012;

(iii)Default surcharge and penalties not to be applied/attracted; and

(iv)The liability of Sales Tax up-to the tax period May 2012 should be discharged by June 15, 2012 and for the tax period June 2012 by July 15, 2012.

(b)Effective July 01, 2012 (through the ensuing Federal Budget), like many other products/goods, Fertilizers merits consideration for inclusion in the Third Schedule to the Sales Tax Act, 1990 (i.e., Sales Tax is collected on the Retail Price from the Manufacturers).

We sincerely hope due consideration would be given to our request/proposal for resolving the problems faced by the dealers/distributors of the fertilizer through out the country.

We further, request that kindly allow us an opportunity of being heard in person and we shall be also pleased to furnish any other details, documents or evidence required in this connection.

Thanking you, we remain,

Yours truly,

For All Pakistan Fertilizer Dealers Association

President