Fertilizer companies to benefit from GST cut on phosphoric acid to 12% from 18%: ICRA

The recent reduction of the Goods and Services Tax (GST) on fertiliser-grade phosphoric acid to 12% from 18% earlier is likely to be marginally positive for fertilizer manufacturers as it will benefit them in terms of lower input tax credits that will result in lower working-capital blockage, says ratings agency ICRABSE -0.03 %.

The GST Council in its meeting held last Thursday decided to reduce the tax rate. The 18% tax rate earlier on phosphoric acid and ammonia vis-a-vis the 5% tax rate on fertilisers was leading to build-up of input tax credits for the industry especially because subsidy is free from GST, thereby leading to increase in working capital requirement.

K. Ravichandran, senior vice-president and group head, corporate ratings, ICRA, said, the government has partially paid heed to the industry’s demand for reduction of the GST rate for key raw material for manufacturing of di-ammonium phosphate (DAP) and complexes (fertilizers).
“While fertilisers are taxed at 5%, taxation of inputs at 18% had led to an inverted duty structure and blockage of working capital due to large unused input tax credits. The reduction in the tax rate on phosphoric acid will result in reduction of the input tax credits and associated cash flow mismatch for the industry,” said Ravichandran.
However, while the industry was expecting the tax rate on both ammonia and phosphoric acid to be reduced to 5% to resolve the issue of inverted duty structure, no change in the tax rate on ammonia and 12% tax rate on phosphoric acid will continue to result in large unused input tax credits for the industry and associated liquidity issues, views ICRA.
While reduction in the tax rate on phosphoric acid is a welcome step, delay in reimbursement of the input tax credits adds to the strain in the liquidity position of the industry already impacted by delay in receipt of subsidies from the government, says the rating agency.
The GST Council has also reduced the GST rate on drip-irrigation systems and mechanical sprayers from 18% to 12%. ICRA said the change in the tax rate should encourage farmers to take up efficient irrigation systems and mechanical sprayers for pesticide application. The GST Council has also cut the tax rate on bio-pesticides from 18% to 12%, which, the rating agency said, should aid its demand and use by the farming community.
“The reduction in the tax rates on drip-irrigation systems reiterates the focus of the Union government to promote irrigation facilities for the farm sector and its overall plan to double the farm income by FY2022. The decline in tax rate on bio-pesticides is in line with the government’s intent to promote the use of these products through various government schemes and should encourage farmers to use these products as an alternative to the chemical pesticides.” said Ravichandran.

Source:https://economictimes.indiatimes.com/industry/indl-goods/svs/chem-/-fertilisers/fertilizer-companies-to-benefit-from-gst-cut-on-phosphoric-acid-to-12-from-18-icra/articleshow/62603098.cms

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