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Revising Fertilizer Subsidy and Taxes Policy for Reducing Cost of Production of Major Crops in Pakistan

Revising Fertilizer Subsidy and Taxes Policy for Reducing Cost of Production of Major Crops in Pakistan

Abid Hussain1*, Muhammad Azeem Khan2, Muhammad Anjum Ali Buttar3, Umar Farooq4, Muhmmad Islam5 and Zahid Ullah Khan1 

1Social Sciences Research Institute Agricultural Economics Research Institute (SSAERI), National Agricultural Research Centre (NARC), Islamabad, Pakistan; 2National Agricultural Research Centre (NARC)/ Planning Commission of Pakistan, Islamabad, Pakistan; 3Plant Sciences Division (PSD), Pakistan Agricultural Research Council (PARC), Islamabad, Pakistan; 4Social Sciences Division (SSD), Pakistan Agricultural Research Council (PARC), Islamabad, Pakistan; 5National Fertilizer Development Centre (NFDC), Islamabad, Pakistan.

abid.parc@gmail.com  

ABSTRACT

Reduction in cost of production to make agriculture profitable is a major challenge and all out efforts have been made by successive government in Pakistan to pass benefits to the farmers by reducing input prices through reduction in GST, providing cash subsidy and supplying inexpensive feed gas for fertilizer industry. Currently, cash subsidy on urea is costing Rs. 12 billion to national exchequer and total tax relief (all products inclusive) costing around Rs. 40 billion to the national exchequer, respectively. Thus, total financial implication of subsidy and tax relief is Rs. 52 billion. In the existing tax regime tax rates vary greatly from 3.55% (SSP) to 11.73% (NPK). Due to these distortions farmers prefer to use higher dosages of Urea and low grade P-based fertilizers. This anomaly is negatively affecting productivity of major crops in general and high value crops in particular. Presently average weighted tax rate on all fertilizers is 5.83 percent. The imposition of uniform tax rate of 5% on all fertilizers, without cash subsidy on urea will reduce financial implication to Rs. 43 billion and at 2% tax rate financial implication will be Rs. 53.7 billion per annum. Imposition of uniform tax rates will result into decrease in market prices of fertilizers, consequently their use will be higher and balance among nutrients application will improve. The Imposition of uniform tax rate of 2% will reduce fertilizer cost for production of major crops by; 18% for wheat, 13% for rice, 20% each for cotton and sugarcane. Modest increase in crop productivity by just 5% could result in additional production of major crops (wheat, rice, cotton, sugarcane and maize) of worth Rs. 111.57 billion. While, existing production levels of major crops can be obtained by reducing area under these crops by 859 thousand hectares, and spared area can be brought into cultivation under high value crops to diversify the cropping systems. 

 

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Sarhad Journal of Agriculture

June

Vol. 35, Iss. 2, Pages 320-662

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