GST on raw materials may hit fertilizer output, boost imports

Date:07-21-2017

A new tax on the raw materials used to make phosphate-based fertilizers in India will increase domestic manufacturing costs and make imports more attractive, according to the Fertiliser Association of India.

India imposed an 18% goods and services tax from 1 July on phosphoric acid, ammonia and sulphur, key ingredients to produce di-ammonium phosphate fertilizer. That compares with a 5% tax both on the fertilizer produced locally and imported.

In some cases, where the new taxes on raw materials are higher than final products, manufacturers will get a refund within 60 days, according to the government rules. Still, there are concerns about timely refunds, Satish Chander, director general of the Fertilser Association of India, said in an interview in New Delhi.

“While importers will flourish, domestic manufacturers will be at a disadvantageous position,” Chander said. “Capacity utilization of the industry will decline from 65 percent at present” and fertilizer manufacturers may also see a decline in earnings, he said.

The industry is seeking to reduce the raw material tax to 5%, according to Chander.

Companies that make di-ammonium phosphate in India include Tata Chemicals Ltd., Coromandel International Ltd. and Gujarat State Fertilizers & Chemicals Ltd.

India’s di-ammonium phosphate production increased 13% to 4.33 million tons in the year ended in March. In contrast, imports fell 27% to 4.38 million tonnes, according to figures compiled by the association.

Some urea plants are also facing problems due to a 15% regional tax in the state of Andhra Pradesh on natural gas, according to the association. Natural gas, which is exempted from the nationwide goods and services tax, earlier attracted a 2% central sales tax, the association said.

India, the world’s second-biggest consumer of urea and a major user of phosphatic fertilizers, relies heavily on farm nutrients to boost food production to feed its 1.3 billion people. About 70% of the population depend directly or indirectly on farming.