When the government spends heavily from its budget to make fertilisers available to farmers at a fraction of their cost, it seems senseless to tax them or the RMs used for making them. The Standing Committee on Chemicals and Fertilisers has recommended that the Centre propose to the GST Council to reduce tax rates on fertilisers from the current 5%. It has also sought a reduction in GST on raw materials (RMs) used in the making of fertilizers. Currently, RMs such as sulfuric acid and ammonia are levied 18% GST, while phosphoric acid attracts 12%. The present structure of taxing fertilisers and RMs used for making them has three major flaws. 1. To make fertilisers affordable to farmers, the government...
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Category: Fiscal levies
Rationalise taxes on fertilisers
The cost of making fertilisers available to farmers by itself is substantially higher than the price the Govt wants them to pay, ideally, it should not levy any tax In its report laid in Parliament on August 9, 2023, the Standing Committee on Chemicals and Fertilizers has recommended that the Union Government should propose to the GST Council to reduce tax rates on fertilizers from the current 5 per cent. Initially, fertilizers were placed under the 12 per cent slab. However, following representation made by various states, the tax rate was reduced to 5 per cent. Now, the Committee wants this to be reduced further. It has also asked the Government to “consider favourably the proposal to lower GST on...
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Levy 5% GST on natural gas to reduce fertiliser subsidy
Bringing natural gas under GST can end the extant differential taxation regime/varying urea cost and subsidy payments across states. It will eliminate the cascading effect of tax on tax Fertilisers attract GST at the rate of 5 percent. This together with low MRP results in a scenario where output tax liability is insufficient to offset taxes paid on inputs such as natural gas. Finance minister Nirmala Sitharaman has said that the tax rate for five petroleum goods – crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) – can be fixed under the Goods and Services Tax (GST) as soon as the states give their consent at a GST Council meeting. GST is a ‘single tax’ applied all...
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Hoping for a coronavirus-induced fertilizer reforms
Even as Prime Minister Narendra Modi has declared his intent to use Covid–19 as an opportunity to implement big bang reforms, the government is silent on fertilizers – a sector that has been crying for reforms for far too long. To put things in perspective, let us take a look at some basic facts on existing policies. Prior to the 1990s, both urea –main source of nitrogen (N)–and phosphate (P) and potash (K) fertilizers such as di-ammonium phosphate (DAP) and a whole range of complex fertilizers containing N, P&K in different proportion etc, fell under pricing and distribution controls. The maximum retail price (MRP) of each fertilizer was controlled at a low level and excess of cost of production and...
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Fertilizer reforms – Corona connection
Amidst all the bad news on the economic front under a prolonged lockdown, the meteorological department has come out with some good news for fertilizers – the most crucial agricultural input that help in increasing crop yield. The department has predicted normal monsoon with the country as a whole receiving 100 per cent of the long period average (LPA) of 88 centimetre rainfall. This together with substantial increase in cash in the hands of farmers [record procurement of wheat by government agencies viz. Food Corporation of India et al at the minimum support price (MSP) alone has given them about Rs 40,000 crore; direct income support of Rs 2000/- each to about 9 crore farmers under PM KISAN yielding Rs 18,000 crore...
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Fertilizer reforms – time for big bang
An official from the department of fertilizers is reported to have said that by putting 45 kg of urea in a bag, it is possible to achieve 10% saving in consumption. His logic is that farmer calculates requirements on per acre basis. He needs 90 kg which can be met with 2 bags of 45 kg each against current practice of using two bags of 50 kg each. Are we to infer that until hitherto, 10% urea was going waste as he was forced to buy 100 kg – against need of 90 kg – and that loss will now be prevented with use of 45 kg bag? How come such an innovative idea did not strike policy makers earlier?...
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GST will boomerang on fertilisers
Even if the lower end of 12% is applied to fertilisers, it would be double the existing duty Given the critical role of fertilisers in ensuring food security, for decades, the government has followed a policy of controlling their prices at low level—unrelated to cost of supply—and reimbursing the excess as a subsidy to the manufacturers. The Goods and Services Tax is being billed as transformative reform that has the potential to drastically reduce transaction costs — owing to elimination of cascading effect of tax-on-tax and withdrawal of a host of local levies— and substantially increase efficiency across the supply chain as interface with multiple authorities over a number of geographical locations gets eliminated. For the fertiliser industry, however, the...
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Minus gas – GST will boomerang on fertilizers
The passage of the 122nd constitution amendment bill [already cleared by Lok Sabha last year] by Rajya Sabha [RS] on August 3, 2016 paves the way for introduction of the Goods and Services Tax [GST]. This is a ‘trans-formative’ reform that will convert the Indian Union of 29 states in to a seamless national market enabling free movement of goods and services as a single ‘uniform’ tax replaces a plethora of existing taxes – at the central and state level. A single uniform tax regime applicable across all states and union territories will drastically reduce transaction cost [due to elimination of cascading effect of tax-on-tax and withdrawal of a host of local levies] and result in substantial increase in efficiency...
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Fertilizer woes – quick fix won’t work
On July 4, 2016, the minister for chemicals and fertilizers, Ananth Kumar announced government’s decision to reduce maximum retail price [MRP] of non-urea fertilizers viz., DAP [di-ammonium phosphate: 18% nitrogen [N] & 46% phosphate [P]]; MOP [muriate of potash] [60% potash [K]] and complex fertilizers [contain N, P and K in different proportions] with immediate effect. The retail price of DAP has been reduced by Rs 2,500 per ton to Rs 22,000/tonne, MOP by Rs 5,000 per ton to Rs 11,000/tonne and those of complex fertilizers by Rs 1,000/tonne on an average. The minister went on to say that the rate cut would entail a benefit of Rs 4,500 crore to farmers and help promote balanced use of fertilizers. On...
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‘Make in India’ skips fertilizers
Even as Modi – government has unleashed a wave of reforms to accelerate the pace of foreign direct investment [FDI] and give a boost to prime minister’s flagship “Make in India”, fertilizers happens to be one sector that has been completely bypassed. While, indigenous production in all segments of this crucial industry continues to languish, the most neglected is DAP [di-ammonium phosphate; it contains 18% nitrogen [N] and 46% phosphate [P]] where traders have hey-day at the expense of domestic industry. Of the total DAP consumption in India, nearly 60% is met from imports. India is the single biggest buyer of DAP in global market with a share of more than 50 per cent of globally-traded DAP. Even for domestically-manufactured...
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