Federal Board of Revenue boosts fertilizer industry with tax exemptions

The fertilizer industry in Pakistan has witnessed a significant boost in the fiscal year 2022-23, thanks to substantial sales tax exemptions amounting to Rs 252.60 billion. This tax relief primarily focuses on local fertilizer supplies, driving a remarkable 28.1% growth in the agriculture sector. The latest Tax Expenditure Report by the Federal Board of Revenue (FBR) highlights the surge in agricultural production from Rs. 14,891.6 billion to Rs. 19,079.4 billion.

With the expansion of the agriculture sector, the demand for fertilizers surged, leading to increased input costs. While the import of fertilizers incurred Rs 19.9 billion in expenditure, local fertilizer production enjoyed a significant tax exemption of Rs 232.6 billion under the Sixth Schedule of the Sales Tax Act 1990.

The Tax Expenditure Report also sheds light on the tax expenditure in the manufacturing sector, amounting to Rs 98.2 billion. Notably, the largest share of sales tax exemption expenditure was attributed to POL Products (Local Supplies) at Rs 1,257.51 billion, primarily due to the zero rating of POL products introduced in February 2023.

Moreover, a substantial rise of Rs 327.91 billion was observed in the exemption under the Sixth Schedule for local supplies, driven by the exemption on local fertilizer supplies. The report indicates a significant increase in federal tax expenditure in 2022-23, influenced by various relief measures and economic stabilization efforts.

The GDP in 2022-23 experienced a notable 27.1% increase, reaching Rs 84,068 billion. The Large Scale Manufacturing (LSM) sector and export values also saw growth, along with an increase in inflation levels. Over the past five years, tax expenditures have shown a gradual rise, with Sales Tax and Customs Duty Expenditures witnessing significant growth.

The tax exemptions in the fertilizer industry have played a crucial role in boosting agricultural production and overall economic growth in Pakistan. With strategic measures and exemptions, the sector has witnessed substantial progress, contributing to the country's GDP and manufacturing sector. The Tax Expenditure Report provides valuable insights into the impact of tax policies on different industries, highlighting the importance of targeted relief measures for sustainable economic development.