The GST Council is planning to fix an inverted tax structure in the fertiliser industry by possibly applying a uniform 12% GST rate on both raw inputs and finished fertilisers
Why This Matters
Right now, raw materials such as ammonia carry a 12% GST, while the final fertiliser products are taxed at just 5%. This mismatch—called an inverted duty structure—causes trouble for manufacturers. It ties up working capital in refund processes, increases compliance burdens, and discourages fresh investments.
How the Government Plans to Help
The government acknowledges the problem and is ready with a fix. If the GST on final products goes up to match the input tax, it could raise prices. To prevent this, the government is considering compensating the industry through direct subsidies. This way, farmers won’t bear the extra cost, but businesses won’t suffer either.
Another benefit? The current tax gap encourages some to mislabel industrial urea (taxed at a higher rate) as fertiliser-grade urea (taxed at 5%) to dodge taxes. Applying a uniform rate would reduce this misuse and improve transparency.
Simplicity and Efficiency
Fixing the tax structure would also reduce administrative headaches. There would be fewer refunds to process, clearer rules to follow, and a fairer system for everyone involved. This cleaner design could pave the way for more investments and help improve overall agricultural productivity.
What’s Next
This proposal is expected to be part of the Group of Ministers’ (GoM) recommendations. The GST Council may discuss and possibly approve it in its next meeting, likely by September