New Delhi: Despite reduction in rates of critical raw materials for fertilisers, the issue of subsidy-related price inversion that saw an accumulation of input tax credit for the industry has not been resolved, said executives of several large fertiliser makers.
"The output value derived from the sale of fertilisers, on which GST refund is provided, is much lower than input value. This results in a large accumulation of GST input tax credit (ITC)," said the chief financial officer of a large fertiliser firm.
In India, fertilisers are sold below cost to ensure affordability for farmers, with the subsidy component provided by the government being exempt from GST. The government should permit full refund of ITC accumulated due to subsidies, which are not part of taxable revenue, said Vineet Jain, managing director, R M Phosphates & Chemicals, adding that this refund will enhance the free cash flow position of fertiliser companies, allowing greater investment in new capital projects.
This persistent flaw in the tax system has locked up close to ₹3,500 crore in working capital for just a few large fertiliser makers, the Federation of Indian Chambers of Commerce & Industry ( FICCI) had said in a letter to finance minister Nirmala Sitharaman before the tax reforms were announced.
"This disparity has led to persistent accumulation of unutilised ITC, blocking critical working capital," the companies wrote, underscoring the strain on manufacturers and importers of phosphatic, potassic and NPK fertilisers.
While the exemption has kept fertiliser within reach of millions of cultivators, it has sharply reduced the output tax liability of producers. The letter recommends that the government clarify refund eligibility under Section 54(3) of the Central GST Act, specifically allowing companies to claim refunds where ITC builds up due to subsidy-linked price inversion.
Without such a clarification, companies warn, working capital pressures could intensify even as the government seeks to strengthen the agricultural supply chain.
The GST on fertilizers like ammonia, sulphuric acid, nitric acid has also been reduced from 18% to 5% earlier this month.
"The output value derived from the sale of fertilisers, on which GST refund is provided, is much lower than input value. This results in a large accumulation of GST input tax credit (ITC)," said the chief financial officer of a large fertiliser firm.
In India, fertilisers are sold below cost to ensure affordability for farmers, with the subsidy component provided by the government being exempt from GST. The government should permit full refund of ITC accumulated due to subsidies, which are not part of taxable revenue, said Vineet Jain, managing director, R M Phosphates & Chemicals, adding that this refund will enhance the free cash flow position of fertiliser companies, allowing greater investment in new capital projects.
This persistent flaw in the tax system has locked up close to ₹3,500 crore in working capital for just a few large fertiliser makers, the Federation of Indian Chambers of Commerce & Industry ( FICCI) had said in a letter to finance minister Nirmala Sitharaman before the tax reforms were announced.
"This disparity has led to persistent accumulation of unutilised ITC, blocking critical working capital," the companies wrote, underscoring the strain on manufacturers and importers of phosphatic, potassic and NPK fertilisers.
While the exemption has kept fertiliser within reach of millions of cultivators, it has sharply reduced the output tax liability of producers. The letter recommends that the government clarify refund eligibility under Section 54(3) of the Central GST Act, specifically allowing companies to claim refunds where ITC builds up due to subsidy-linked price inversion.
Without such a clarification, companies warn, working capital pressures could intensify even as the government seeks to strengthen the agricultural supply chain.
The GST on fertilizers like ammonia, sulphuric acid, nitric acid has also been reduced from 18% to 5% earlier this month.
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