GST Cut Relief for Fertilizer Industry

New Delhi, Sep 4 (PTI) The reduction in GST rates on critical fertiliser raw materials has provided much-needed breathing room for an industry long squeezed by tax disparities and working capital constraints, industry body SFIA said on Thursday.

The government's decision to slash GST rates to 5 per cent on key inputs including sulphuric acid, nitric acid, and ammonia addresses a structural imbalance that has plagued fertilizer manufacturers for years.

Previously, companies faced an 18 per cent GST on raw materials while finished fertilizers attracted just 5 per cent tax -- a mismatch that created severe liquidity pressures.

"For years, indigenous manufacturers, particularly MSMEs, struggled under the burden of this tax rate disparity," Soluble Fertiliser Industry Association (SFIA) National President Rajib Chakraborty said in a statement. "This imbalance created severe working capital blockage."

Chakraborty explained that the tax structure proved particularly punishing for small and medium enterprises.

Under the earlier regime of 2 per cent Central Sales Tax or 5 per cent Value Added Tax, manufacturers operated with manageable tax burdens. However, the straight 18 per cent GST on inputs hit them hard, with 13 per cent tax accumulation getting locked in the system for every unit produced, he said.

This liquidity drain was compounded by the cumbersome refund process under the inverted duty structure. Seeking refunds involved heavy compliance costs, with consultancy and liaison expenses alone consuming 3-7 per cent of profit margins.

The administrative burden eroded competitiveness while imports, particularly from China, gained market advantage, he said.

The GST rate alignment now allows manufacturers to procure inputs at the same rate as finished goods, ensuring full utilization of working capital and smoother cash flows. Lower financing costs will enable SMEs to focus on core manufacturing activities rather than navigating tax-related bottlenecks.

The SFIA sees potential for further reforms to strengthen the sector's foundation. Enabling tax refunds on capital assets and R&D grants could reduce plant and machinery costs while encouraging greater investment in innovation among SME entrepreneurs.

"By addressing both working capital challenges and long-term investment barriers, these reforms together can create fertile ground for 'Make in India'," Chakraborty noted, "driving self-reliance, competitiveness, and sustainable growth in the fertilizer sector.