The debate over GST on fertilizers has resurfaced as a parliamentary panel has urged the government to slash GST on fertilizer raw materials from 18% to 5%. The recommendation is aimed at correcting the inverted duty structure, which inflates production costs and strains India’s subsidy system.
Fertilizers Already at 5% GST
Contrary to some reports, finished fertilizers already fall under the 5% GST slab. When GST was introduced in 2017, the rate was cut from 12% to 5% to protect farmers from rising costs. The Finance Ministry estimated that this step saved ₹1,261 crore annually for the agriculture sector while ensuring uniform pricing across states
The Problem: Raw Materials Still at 18%
While farmers benefit from the low GST on fertilizers, companies manufacturing these fertilizers face high input taxes. Key raw materials such as sulfur, ammonia, and phosphoric acid are taxed at 18%, creating an inverted duty structure where inputs cost more than the final product.
This anomaly forces the government to pay higher subsidies to fertilizer companies, ultimately burdening the exchequer. Economic Times
Panel Recommendation: Raw Materials to 5%
A parliamentary committee on fertilizers has suggested that the GST Council should reduce the tax rate on raw materials from 18% to 5%, bringing them in line with finished fertilizers. This, according to the panel, will:
- Lower fertilizer production costs.
- Ensure subsidies are better utilized.
- Reduce the financial stress on fertilizer manufacturers.
- Make fertilizers more affordable for farmers.
Industry and Policy Push
Fertilizer industry bodies have long called for tax rationalization. They argue that aligning GST rates across inputs and outputs will improve efficiency and reduce subsidy outflow. A proposal for a uniform 12% GST slab across both fertilizers and inputs was also floated but has not been implemented yet
What Lies Ahead?
Currently, the government has not announced any official decision on revising GST for raw materials. Any such move requires GST Council approval, where both the Centre and states deliberate. If accepted, this could mark one of the most significant reforms in India’s agriculture supply chain in recent years.
