Goods and Service Tax: A bad deal, say fertiliser makers

Phosphoric acid and ammonia — which are the sources of phosphorus (P) and nitrogen (N), respectively, for manufacture of DAP and NP/NPK complexes — attract 18 per cent duty under the GST rate schedule.

Written by Harish Damodaran | New Delhi | Updated: July 13, 2017 1:44 am
Goods and Service Tax, GST, fertiliser GST, pesticide GST, GST regime, fertilizer tax, GST rate schedule, indian express news, india news, business news, economy Adding processing and all other costs (bagging, financial charges, marketing expenses, dealer margins, etc.) of Rs 5,000 takes the total to Rs 30,560 per tonne.

The decision to lower the Goods and Services Tax (GST) rate on fertilisers from 12 to 5 per cent — taken at the last minute just before the new taxation regime kicked in on July 1 — hasn’t gone down too well with the industry. Manufacturers of di-ammonium phosphate (DAP) and complex fertilisers say the duty cut on final product without a simultaneous reduction in rates on inputs — phosphoric acid and ammonia — will render domestic production unviable and result in a flood of imports.

Phosphoric acid and ammonia — which are the sources of phosphorus (P) and nitrogen (N), respectively, for manufacture of DAP and NP/NPK complexes — attract 18 per cent duty under the GST rate schedule. About 465 kg of phosphoric acid and 223 kg of ammonia are required for producing one tonne of DAP.

At current landed prices of $ 567 per tonne for phosphoric acid and $ 250 per tonne for ammonia at Indian ports, the cost of these imported inputs — after adding 5.15 per cent customs duty and the 18 per cent integrated GST on top — works out to $ 396 or Rs 25,560 for every tonne of DAP.

Adding processing and all other costs (bagging, financial charges, marketing expenses, dealer margins, etc.) of Rs 5,000 takes the total to Rs 30,560 per tonne. After netting out the Centre’s subsidy of Rs 8,937, a domestic manufacturer would be able to sell DAP at Rs 21,623 per tonne or so.

On the other hand, DAP is directly importable at $ 355 per tonne, while attracting only 5 per cent customs duty and the same IGST on top of it. Adding these and costs of stevedoring, bagging, distribution and financial charges, etc. of Rs 3,000, the total comes to Rs 28,244. Minus the subsidy of Rs 8,937, the imported DAP can sell at Rs 19,307 per tonne.

Read | Nutrient Facts: Crash in global fertiliser prices bring little gains to Indian farmers

Simply put, a 50-kg DAP bag would roughly Rs 115 cheaper if imported, as opposed to being manufactured at home.

The economics is somewhat better for phosphoric acid produced domestically for captive consumption. In that case, the 18 per cent IGST will not get charged, even though imported merchant ammonia would continue to attract this rate. The Indian Farmers Fertiliser Cooperative, Coromandel International Ltd (CIL), Paradeep Phosphates, Gujarat State Fertilisers & Chemicals and a few others have their own phosphoric acid manufacturing facilities. These, in turn, use imported rock phosphate and sulphur as raw material. But even for them, the IGST rate on rock phosphate has been set at 5 per cent, while 18 per cent for sulphur recovered as by-product in refining of crude oil!
“The entire structure has been messed up. This is a big blow for Make in India, as far as DAP and complex fertilisers are concerned,” claimed an industry source. India produced 4.33 mt of DAP in 2016-17, while importing an almost equal quantity. In the case of NP/NPK complexes, domestic production was 7.92 mt and imports only 0.52 mt.

On the raw materials, practically the entire ‘N’ (from ammonia) and ‘K’ (potash) used in the manufacture of DAP and NP/NPK complexes is imported. The domestic-import ratio in phosphoric acid is about 45:55. A significant part of phosphoric acid imports are from overseas joint ventures in Senegal, Jordan, Morocco and Tunisia — nations with abundant rock phosphate reserves — in which the likes of Iffco, Chambal Fertilisers, CIL and GSFC have significant stakes. “These projects have been established mainly to secure uninterrupted supply of phosphoric acid for our DAP and NP/NPK plants. Now, even their viability may be affected,” the source added.

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