Fertilisers come under 12% GST slab, prices to rise
India’s landmark tax reform, the goods and services tax (GST), may not be good news for farmers. Retail prices of commonly used fertilisers and micronutrients are likely to increase, not only raising the cost of cultivation but also leading to imbalanced use of fertilisers.
Last week, the GST Council fixed a 12% rate on fertilisers, up from the current 4-8% rates, depending on raw materials used and in which states the products are sold. For urea, the most commonly used fertiliser, prices may go up by ₹300 to ₹400 per tonne.
For other fertilisers such as diammonium phosphate (DAP) the hike in retail prices could be as high as ₹3,000 per tonne in states such as Punjab, Haryana and Uttar Pradesh, where there are no taxes at present on the farm nutrients, calculations by industry executives show.
The proposed 5% GST on road transport could further escalate retail prices as transport of fertilisers has been hitherto exempt from service tax.
As most states did not levy any value-added tax (VAT) on micronutrients, organic manure and biofertilisers, the 12% GST rate will mean a rise in retail prices of these minor fertilisers.
“For urea, if the government wants to foot the bill it will have to bear an additional (subsidy) burden of around ₹1,000 crore, else retail prices will go up by ₹20 per bag (of 50kg each),” said a fertiliser industry executive who did not want to be named.
Urea prices are currently controlled by the government and fixed at around ₹5,630 per tonne.
The executive added that since prices of non-urea fertilisers have been decontrolled, the rise in retail price of a 50kg bag of DAP will be around ₹125 (currently it costs ₹1,000- 1,100 per bag), or a 10% rise in retail prices.
“This will take away the gains from the previous year when a fall in price of imported inputs led to lower retail prices of decontrolled fertilisers,” the executive said. “We were expecting the government to fix a GST rate of 5% which would have reduced the burden on farmers but that did not happen.”
More importantly, GST, which will be enforced from July 1, will likely widen the price gap between urea, which is heavily subsidised, and complex fertilisers such as DAP, forcing farmers to continue over-use of urea.