Phosphoric Acid, Phosphates & Fertilizers Experts

High GST may badly hit fertiliser makers, farmers alike

HYDERABAD: Indian fertiliser makers and farmers may get badly hit by the high taxes on fertilisers, which will double after the Goods and Services Tax (GST) rollout, said representatives of fertiliser industry, farmers’ associations and sector analysts.

Farmers will end up paying higher for fertilisers, while fertiliser manufacturers will have to face the heat of a high GST that they may find difficult to pass on completely to farmers.

Taxes on fertilisers are set to shoot up to an average of 12% with the GST rollout from an average of 5% now.

Further, fertiliser makers may see their working capital requirements shoot up given the normal delays in the release of input tax credit from government departments, said industry representatives. This, sector analysts said, would be a negative for the Indian fertiliser industry, which was beginning to see green shoots on the back of lower input costs and expectations of good monsoons.

“As regards complex fertiliser manufacturers are concerned, tax on raw materials namely ammonia and phosphoric acid is higher at 18% compared to 12% on the finished products. This will lead to higher working capital requirements for the industry,” said K Ravichandran, senior vice-president, corporate ratings, ICRA. “Companies, both into urea and complex fertilisers, are likely to witness blockage of refundable tax money under GST.”

Competition from imported fertilisers will intensify for domestic complex fertiliser manufacturers since the latter will suffer from additional taxes, the analyst said. “This will be credit negative for the industry.”

G Munender, former member of Fertilizer Advisory Board, feels that the expected increase in fertiliser prices will force farmers to cut down on fertiliser consumption despite indications of a good monsoon. “While rich farmers have already stocked lower taxed fertilisers for the upcoming season, smaller farmers would bear the brunt.”

Higher taxes will be counter-productive for the industry and would encourage higher imports, says Satish Chander, director general of Fertilizer Association of India. Airing concerns over the negative impact on the fertiliser sector, he said, “The increased tax burden will impact farmers and the industry alike and the domestic industry would be at a loss because there is no provision to return the input tax credit (for urea) given the high subsidy level.”

Natural gas, a key component of urea, the most widely used fertiliser in India, was kept outside the ambit of GST and will attract 15% value added tax (VAT) in various states. Hence, fertiliser companies feel that they will not be able to claim input tax credit on taxes paid on finished goods.

According to ICRA estimates, refund of excess of input tax credits would be worth Rs 6,000 crore though it requires more clarity from the tax department. Further, the rating agency feels that compliance burden will also increase for the urea industry as it will have to deal with both the existing tax regime and GST.