Is Tax­ing Biodiesel Ir­ra­tional?

Green fuel Biodiesel would at­tract 18% tax un­der the GST regime and the in­dus­try play­ers point out higher rate could shut biodiesel In­dus­try and the de­ci­sion needs Course Correction. BK Jha Re­ports

Rural & Marketing - - ENERGY -

High Good and Ser­vices Tax (GST) rate on Biodiesel will be the "fi­nal nail" in the coffin for the sun­rise and green sec­tor which is al­ready reel­ing un­der the pres­sure of high, com­plex and var­ied tax­a­tion poli­cies of the states and lack of clar­ity on the pol­icy front, has made it even more vul­ner­a­ble for the in­dus­try play­ers.

Biodiesel across the world is be­ing pro­moted as a green fuel which helps in mit­i­gat­ing par­tic­u­late emis­sion from diesel ve­hi­cles and re­duces GHG (Green House Gas) emis­sions sig­nif­i­cantly. In view of this, the biodiesel in­dus­try in In­dia also seeks im­ple­men­ta­tion of the pend­ing Na­tional Pol­icy on Bio­fu­els. Ac­cord­ing to the in­dus­try play­ers, the gov­ern­ment should re­al­ize that Euro­pean coun­tries like UK, Ger­many, France and oth­ers have man­dated the use of biodiesel of up to 7 per­cent in trans­port fu­els and is plan­ning to in­crease the same to much higher lev­els in the years to come. This has led to biodiesel be­ing sold at a price premium to diesel in th­ese coun­tries. In In­dia, which is a price sen­si­tive mar­ket, a higher cost of bio­fuel to diesel will not work more so with no man­date to re­duce pol­lu­tion.

The green fuel - Biodiesel is re­quired by the gov­ern­ment which wants to cut its crude im­port by 10 per­cent and more so with an en­vi­ron­ment friendly fuel. How­ever, the high in­ci­dence of tax on biodiesel will make it costlier

than diesel and ul­ti­mately make it un­com­pet­i­tive.

Higher GST on Biodiesel

Un­der the GST rates an­nounced re­cently, biodiesel, ethanol and other mix­ing prod­ucts would be charged 18 per cent. For the last 10 years, Biodiesel at­tracted zero ex­cise duty and even some states in­clud­ing the lead­ing pro­duc­ing states of West Ben­gal, Ut­tar Pradesh, Ut­tarak­hand, Ch­hat­tis­garh and Ra­jasthan, charged zero Value Added Tax (VAT) on biodiesel. The real start to Biodiesel sup­ply in In­dia com­menced only 2 years ago and is very much in its nascent stage. Hav­ing had the zero ex­cise duty for the last 10 years, re­plac­ing the same with a very high 18% GST is to­tally bi­ased against this re­new­able and eco friendly fuel.

“It is a matter of great de­spair as 18 per­cent GST would make biodiesel costlier than diesel while the thrust glob­ally is on eco friendly and re­new­able fuel. It is a para­dox when we have high pol­lu­tion in the cities that a prod­uct like biodiesel that can re­duce pol­lu­tion, specif­i­cally par­tic­u­late pol­lu­tion is slot­ted in a very high tax struc­ture rather than be­ing ex­empted to im­prove its use. The high tax rise of Rs. 5 per liter would re­strain mass con­sump­tion by even ex­ist­ing users like OMCs, Rail­ways and Road Trans­porters. The farm­ers will switch back in to use of pol­lut­ing fu­els and other prod­ucts”, said San­deep Chaturvedi, Pres­i­dent, Biodiesel As­so­ci­a­tion of In­dia (BDAI).

“There is some­thing se­ri­ously amiss in this pol­icy. Prime Min­is­ter Naren­dra Modi is push­ing for Swachh Bharat with a cess and cut­ting con­sump­tion of crude oil to push green bio­fu­els. Higher GST rate on biodiesel con­tra­dicts the gov­ern­ment’s ef­forts to push this clean and green fuel,” he added.

“We were hope­ful that the gov­ern­ment’s in­ten­tions are clear and it would re­vive this green in­dus­try. How­ever, it ap­pears the GST Coun­cil failed to re­al­ize the im­por­tance of bio­fu­els. There is an ur­gent need for course correction,” Chaturvedi said.

San­deep Chaturvedi Pres­i­dent, BDAI It is a para­dox when we have high pol­lu­tion in the cities that a prod­uct like biodiesel that can re­duce pol­lu­tion, specif­i­cally par­tic­u­late pol­lu­tion is slot­ted in a very high tax struc­ture rather than be­ing ex­empted

The UCO fac­tor

An­other ad­verse im­pact of higher rate on biodiesel would be re­duc­tion in ab­sorp­tion of Used

VK Jain Ex­ec­u­tive Di­rec­tor, Ruchi Soya In­dus­tries Lim­ited In terms of rev­enue, the gov­ern­ment is not go­ing to be ben­e­fit­ted as the in­dus­try would col­lapse. The in­dus­try needs pro­mo­tional tax and other poli­cies to in­cu­bate and of­fer the best green fuel prod­ucts.

Cooking Oil (UCO) in the bio­fuel in­dus­try. In­dia pro­duces nearly 22 mil­lion tonnes of oil and nearly 2 mil­lion tonnes of UCO is avail­able for blend­ing. Oil seeds from tribal ar­eas can also be used for the blend­ing and that pro­vides huge in­come op­por­tu­ni­ties in those ar­eas. The UCOs are ma­jor health prob­lem re­sult­ing in obe­sity, hearth and cancer in masses. The UCO could be used as a feed­stock to man­u­fac­ture Biodiesel. The large quan­tity of UCO pro­vides huge scope for blend­ing and that can fur­ther en­hance bio­fuel econ­omy. While re­duc­ing health haz­ards, blend­ing of UCO helps in Swachh Bharat drive also. Hence, a 18 % GST on biodiesel would have cas­cad­ing ef­fect and ad­versely im­pact the green and clean cam­paigns and mis­sions. Rev­enue Im­pli­ca­tions In terms of rev­enue, the gov­ern­ment is not go­ing to be ben­e­fit­ted as the in­dus­try would col­lapse. The in­dus­try needs pro­mo­tional tax and other poli­cies to in­cu­bate and of­fer the best green fuel prod­ucts. But higher GST rate has come as a ma­jor set­back to the biodiesel sec­tor,” said VK Jain, Ex­ec­u­tive Di­rec­tor, Ruchi Soya In­dus­tries Lim­ited.

“The ex­cise duty ex­emp­tion that ex­isted en­sured that biodiesel was sold at price par­ity or even dis­count to diesel en­sur­ing off take till the biodiesel mar­ket ma­tured in In­dia. Now the whole bio­fuel pro­gram will fail de­spite all the stake­hold­ers namely OMCs, Rail­ways etc and the pro­duc­ers hav­ing in­vested sub­stan­tially in this re­new­able energy busi­ness due to the 18 per­cent GST,” said NS Bala­mukun­dan, Man­ag­ing Di­rec­tor, Yantra Fin­tech Lim­ited. The Way For­ward The de­ci­sion to put a high rate at this stage is ir­ra­tional. The gov­ern­ment should ini­tially push the in­dus­try and make the use of green fuel manda­tory. The next

NS Bala­mukun­dan Man­ag­ing Di­rec­tor, Yantra Fin­tech Lim­ited Now the whole bio­fuel pro­gram will fail de­spite all the stake­hold­ers namely OMCs and the pro­duc­ers hav­ing in­vested sub­stan­tially in this re­new­able energy busi­ness due to the 18 per­cent GST

At present, the use of Biodiesel is com­pletely vol­un­tar­ily and there is no man­date/obli­ga­tion on the pol­luters to re­duce the emis­sion by us­ing Biodiesel. A na­tional pol­icy that man­dates the use of green fu­els is ur­gent and the need of the hour given the ram­pant pol­lu­tion

phase would have seen ca­pac­ity build­ing and huge surge in the con­sump­tion of biodiesel. At this point of time, the gov­ern­ment would have in a bet­ter po­si­tion to col­lect tax. The BDAI ob­served that this (higher tax at this point of time) is a pre­ma­ture act.

In­dia needs pro­mo­tional pol­icy and ini­tially no tax for green fuel biodiesel. Pro­mot­ing green fuel biodiesel would go long way in curb­ing ve­hic­u­lar emis­sion and to pro­tect the en­vi­ron­ment. At present, the use of Biodiesel is com­pletely vol­un­tar­ily and there is no man­date/obli­ga­tion on the pol­luters to re­duce the emis­sion by us­ing Biodiesel. A na­tional pol­icy that man­dates the use of green fu­els is ur­gent and the need of the hour given the ram­pant pol­lu­tion across In­dia. Any tax on Biodiesel will dis­cour­age the users and kill this sun­rise In­dus­try.

The in­dus­try pro­duced and sup­plied close to 0.5 mil­lion tons to date and is gearing up to de­liver up to 1mil­lion tons of Biodiesel by 2019 and this will pro­vide half a mil­lion direct jobs.

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