Reduced tax on fertilisers will help farmers: ICRA

NEW DELHI, JULY 4:  

Domestic rating agency ICRA said the recent decision of the Goods and Services Tax (GST) Council to reduce tax on fertilisers to 5 per cent from the earlier decided 12 per cent would help farmers as it would bring down their input costs.

In a release, ICRA said the move would reduce the cost of a 50 kg bag of urea by ₹3 and lead to a similar drop in prices of other fertilisers. In the earlier tax regime, fertiliser sales were taxed from 1 per cent to 6 per cent. This included 1 per cent excise duty and 0 per cent to 5per cent value-added tax (VAT), depending on States.

“With this tax rate being lower than the 6 per cent taxation prevailing in a majority of the States, fertiliser retail prices should see a marginal reduction,” ICRA said.

“However, farmers in States such as Haryana, Punjab, and Andra Pradesh, who were exempted from VAT will now face increased tax incidence of 5 per cent and thus fertiliser prices will increase by 4 per cent in these States,” ICRA noted.

“This decision by the council is credit neutral for the industry as working capital requirement would remain unchanged,” said K Ravichandran, Senior VP and Group Head, Corporate Ratings, ICRA. But domestic manufacturers of DAP and complexes such as ammonia and phosphoric acid may face difficulties as inputs for these nutrients are taxed at 18 per cent, he said.

“The final outputs are taxed at 5 per cent while raw material is taxed at 18 per cent, creating an inverted duty structure. The competitiveness of domestic manufacturers against importers will erode,” he added