SABC seeks GST exemption on farm inputs to reduce financial burden of smallholder farmers

Farmers are paying about Rs 14,500 crore GST annually on farm inputs to produce farm commodities. The input tax credit is a GST mechanism that allows the manufacturers/producers to adjust tax on inputs against tax liability on output, i.e. sales

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New Delhi: The South Asia Biotechnology Centre, a not-for-profit scientific organization recently reached out to the Union Finance Minister Mrs Nirmala Seetharaman to request exemption of Goods and Service Tax (GST) on-farm inputs such as botanical, biological, pheromone trap & lure, micronutrients, fertilizers, pesticides, tractor, drip/sprinkler irrigation systems or other agricultural equipment.

As per SABC, smallholder farmers engaged in the production of cereals, pulses, edible oilseeds, fruits & vegetables, and other commodities pay about Rs 14,500 crore of GST annually on-farm inputs. These farm commodities feed 135 crore Indians and also contribute significantly to the export of agriculture and processed food products. Unfortunately, farmers are the only businesspeople today who cannot claim tax credit input and cannot set it off on the sale of his/her produce. The input tax credit is a GST mechanism that allows the manufacturers/producers to adjust GST tax on inputs against tax liability on output, i.e. sales.

“The inability of farmers to claim input credit tax paid on-farm inputs violates the spirit and foundational principles of the GST system in India,” alluded Bhagirath Choudhary, founder-director of South Asia Biotechnology Centre (SABC), New Delhi. The smallholder farmers should, therefore, be provided a fair treatment in virtue of GST principles as they purchase farm inputs for raising crops, and do not consume them as final goods. Therefore, there must be a mechanism for availing input tax credit, added Mr Choudhary. This is in line with the GST principle that goods and/or products consumed as intermediaries are eligible for the input tax credit. Hence, GST exemption on farm inputs shall be exempted in line with an exemption granted on seeds, animal & poultry feed – other two critical farm inputs.

Mr Choudhary explained further: “Apparently, the issue of GST came into light while implementing the project on fall armyworm, a voracious pest that has become a serious threat to maize production in India. On the purchase of pheromone trap & lures, which are meant for monitoring of FAW adult male – a critical step in determining the economic threshold level (ETL) for farmers to implement control measures, we were shocked to pay 18% GST, which was a trigger to look into GST on other farm inputs. To our conservative estimates, as tabulated below, farmers in India pay a hefty GST on farm inputs costing them about Rs 14,500 crore annually.”

Table 1. GST cost of farm inputs to Indian smallholder farmers ~₹ 14,500 crore per annum
Item
HSN
GST
2018-19 Market Size (Crore)
Farmers Cost of GST (Crore)
Pheromone trap & lure
3808-9990
18%
85
12.9
Botanical/Biological/ PGR/Micronutrients
3101-3105
5-12%
3,300
258.5
Pesticide/Agro-chemical
Insecticides
3808
18%
8,273
1261.9
Fungicides
3808
18%
4,463
680.8
Herbicides
3808
18%
3,891
593.5
Seed Treatment
3808
18%
190
27.3
Total pesticide GST
2563.5
Fertilizers (direct use/use in the manufacturing of other complex fertilizers for agricultural use
(Soil or crop fertilizers)
Urea Domestic
3101-3105
5%
13,507
(48502*!)
675.3
Urea Imported
3101-3105
5%
6,458
(17695*!)
322.9
DAP
3101-3105
5%
25,669
(35551!)
1222
Potash (MOP)
3101-3105
5%
4,734
(6703!)
225.4
Other complex incl. Ammonium Sulphate, Ammonium Chloride, SSP, SOP & NP/NPKs)
3101-3105
5%
26,695
(33183!)
1271.3
Total Fertilizer GST
3,716.7
Tractors
8701
12%
42,000
4,500
Farm Implements/Combined harvesters/pumps/drip & sprinkler system etc
8201-8211
12%
28,920
3,098
PVC, Solar modules, Gen sets etc
350
Seeds
1005-1008, 1207, 1209
NIL
10,000
NIL
Grand GST Total: Rupee Fourteen Thousand Five Hundred crore
14,500
Source: GST Council 2019; Chemical & fertilizer industry estimates, 2019; analyzed by South Asia Biotechnology Centre, 2019  *GST excluded from market size whereas all other products GST is included in market size & therefore GST calculation is carried out as per the nature of market size. ! Market size including of subsidy

“It is a profound tragedy that the hardworking farmers are unable to reap benefits from the claim of input credit tax on paid GST due to nature of their business, exclusion of farm commodities from GST, and non-enrolment of farmers on GST”, said Dr CD Mayee, former Chairman ASRB, Govt of India and President of South Asia Biotechnology Centre, New Delhi.

Further, another issue contiguous with the proposed reform is the possibility of the manufacturers/suppliers of farm inputs reworking the costs to recover input tax credit paid by the company for various raw material, technical and packing material in the form of the increased cost of farm inputs from farmers. Therefore, we request the Government to develop a mechanism for absorption or refunding of the input tax credit for the production of farm inputs or provide GST exemption as for the seed businesses. It will help reduce the cost of farm inputs by at least 18%-point basis and bring great relief to farmers facing the massive problem of the high cost of production due to climate change and infestation of invasive pest and diseases in India.

“Unfortunately, the complexity of GST has deterred farmers organizations including farm bodies of different political parties, to comprehend the nuances about GST on farm inputs and has not been able to help farming community who is losing Rs 14,500 crore every year due to farmers inability to claim input tax credit,” added Dr Mayee.