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Fertilizer producers call for GST rate cut on inputs

Published: Dec 02, 2019

By TIOL News Service

NEW DELHI, DEC 02, 2019: THE Fertilizer Association of India (FAI) has urged the Government to remove GST & other tax anomalies suffered by manufacturers of fertilizers excluding urea. According to a FAI release, domestic manufacture of phosphatic & potassic (P&K) complex fertilizers is suffering due to unfavourable and inverted tax structure for raw materials and intermediates vis-a-vis fertilisers/final products. The customs duty on phosphoric acid and ammonia, the intermediates for manufacture of diammonium phosphate (DAP) is 5%, the same as for DAP and other similar complex fertilizers. Import duties on raw materials & intermediates increases the cost of domestic manufacturing making them uncompetitive against imports.

It says: "Similarly, inverted GST rate on ammonia and sulphuric acid at 18% compared to 5% on fertilizers increases the cost of domestic production. Subsidy rate is same for domestic and imported P & K fertilizers, providing no incentive for domestic value addition ". At an interaction with reporters, FAI Director General Satish Chander pointed out that the capacity utilisation of domestic phosphatic fertilizers had declined from 72% in 2010-11 to 65% in 2018-19 due to unfavourable taxation regime. There have been only marginal capacity additions of 5 lakh tonnes in this sector in the past five years.

Mr Chander suggested that the Government should exempt raw materials and intermediates for P&K fertilizers from customs duty and reducing the rate of GST on ammonia and sulphuric acid at least to 12%. As for urea industry, FAI Chairman K.S. Raju, listed multiple problems faced by the industry to policy and regulatory hurdles. The Government continued to compute urea price on basis of outdated cost structure. The fixed cost of urea units continued to be reimbursed on the basis of 2002-03 cost data. Urea price is under statutory control.

Mr Raju pointed out that the Government had not yet implemented its 2014 decision to allow a nominal increase of Rs.350 per MT of urea, minimum fixed cost of Rs. 2300 per tonne and special compensation of Rs 150/- per tonne to gas-based plants that are more than 30 years old. Non-payment of dues modified under this New Pricing Scheme-III (NPS-III) has resulted in subsidy arrears of Rs 5600 crore for past five years.

The subsidy arrears for the entire fertilizer industry on different counts stand at Rs 33,691 crore dues as on 1st November, 2019. The subsidy arrears are projected to touch Rs 60,000 crore by 31st March 2020 due to budgetary constraints faced by the Government. Mr Raju suggested that the Government should switchover from statutory price control-linked subsidy for urea to nutrient based subsidy (NBS) scheme that is currently applicable to all other fertilizers. Over the medium term, the Government should free the industry as intermediary for fertilizer subsidy by directly paying the subsidy to farmers under its direct benefit transfer (DBT) policy.