Economy

Inverted duty structure post-GST has fertiliser industry all worked up

Suresh P Iyengar Mumbai | Updated on January 09, 2018 Published on August 30, 2017

Imbalance Under the new GST regime, import of key raw materials such as phosphoric acid, ammonia and sulphur attracts 18% GST while the final product is taxed at 5%   -  VM MANINATHAN

Import of key raw materials such as phosphoric acid, ammonia and sulphur attracts 18 per cent GST while the final product is taxed at 5 per cent

The inverted duty structure on the fertiliser industry in the wake of the GST rollout has rendered the industry a fertile ground for a bit of disaffection.

Indicatively, under the new GST regime, import of key raw materials such as phosphoric acid, ammonia and sulphur attracts 18 per cent GST while the final product is taxed at 5 per cent.

On the other hand, imported DAP (diammonium phosphate) attracts only 5 per cent IGST (Integrated GST), which can be set off against the 5 per cent GST on its sale in domestic market.

The impact of this on companies with captive phosphoric acid capacities (using rock phosphate for production of phosphoric acid) will be less harsh, since rock phosphate attracts a GST of only 5 per cent.

Satish Chandra, Director General of the Fertiliser Association of India, said the inverted duty structure has compounded the problems of the industry, which is already reeling under adverse Customs duty. The GST framework, he said, would lead to large-scale closure of potash-based fertiliser-manufacturing companies and expose the country to the monopoly of international suppliers.

The government, he said, should reduce the tax on input for fertiliser manufacturing to 5 per cent, which will avert the problem of having to refund unusually huge accumulated tax credits and shield the industry from a liquidity crisis.

This apart, he said, the government should be prompt about making GST refunds and follow the norms for refunding 90 per cent of the money within seven days.

Debasish Banerjee, CFO, Smartchem Technologies, the wholly owned subsidiary of Deepak Fertilisers and Petrochemicals, said that though the GST rollout has been smooth, the 90-day deadline for refund of GST credit would impact working capital requirements and strain the industry, which is working on thin margins.

The exclusion of petroleum products from GST would push up cost as the spend on natural gas will not yield any credit for set-off, he said.

At the consumer end, the impact of GST is sinking in. Although the GST rates are lower than the 6 per cent levied on fertiliser by a few States in the earlier regime, it will have an adverse impact on States such as Punjab, Haryana and Tamil Nadu, which had completely exempted tax on fertilisers.

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Published on August 30, 2017
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