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February 20, 2021

Govt to consider reducing GST on pesticides to 5% from 18%

by CA Shivam Jaiswal in GST

Govt to consider reducing GST on pesticides to 5% from 18%

Under GST, all goods and services transacted in India are classified under the HSN code system or SAC Code system. Goods are classified under HSN Code and services are classified under SAC Code. Based on the HSN or SAC code, GST rates have been fixed in five slabs, namely NIL, 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.

Crop protection products are an integral part of the green revolution and play a crucial role in increasing agricultural productivity. Over the years, the Indian crop protection industry has made significant progress in terms of enhanced production capacity and integration of imported and indigenised technology to meet the overall requirement of crop protection products in India. The GST regime differentiates Crop Protection from seeds, fertilisers, farm equipment, etc. Seeds (exempt), fertilisers (12%), tractors (12%), crop protection products remain taxable at 18%, depriving the industry of equal treatment vis-à-vis other agricultural inputs. As part of efforts to bring parity in taxation on agricultural inputs, the Department of Chemical and Petrochemicals has approached the Finance Ministry for reducing GST on pesticides from 18% to 5%.

Why is a request made for reduction of GST Rate by Department of Chemical and Petrochemicals?

Along with fertilisers, pesticide is also an important agricultural input that helps in curbing pests and diseases on plants and plays a major role in increasing agricultural production.

But unlike fertilisers that attract 5% GST, pesticide is charged GST at 18%. This rate is even higher than 12% VAT before introduction of the new indirect tax system.

Request also made by PMFAI earlier this year

The Pesticides Manufacturers and Formulators Association of India (PMFAI) on January 2021 had demanded that the government in in the forthcoming Budget should reduce GST to 5% from current 18% on pesticides in line with other farm inputs like seeds and fertilizers.

It also stated that, the government should increase duty drawback (export benefits) of pesticides from the present 2 per cent to 13 per cent besides increasing import duty on technical and finished pesticides to 20-30 per cent to protect the domestic agro-chemicals industry.

The PMFAI also urged the government to extend a financial support and other development assistance for developing technologies for intermediates and technical grade pesticides indigenously under ‘Make in India’ programme.

These were four key demands the PMFAI — which represents over 200 small, medium, and large-scale Indian pesticide manufacturers, formulators, and traders — made in a representation submitted to the fertiliser and chemicals ministry.

Contention of Standing Committee on Chemicals and Fertilisers

  • In its recent report tabled in Parliament, the standing committee on chemicals and fertilisers also expressed dismay at the higher rate of taxation for this critical agricultural input and had asked the department to take quick action to see that the lower rate of taxation is provided for pesticides.
  • The Committee was dismayed to note that GST on pesticides was increased to 18% after roll out of GST from around 12% VAT in most of the important states where the pesticides are consumed on a large-scale.
  • The standing committee has recommended to the government that GST on fertilizers is only 5% and pesticide being another agricultural input, it deserved to be put under 5% slab of GST.
  • The Committee also noted the recommendation of the Department of Chemicals and Petrochemicals to bring down the GST slab to 5%.
  • Since it was disheartening to note that the crops worth Rs 90,000 crore are lost annually due to pests and diseases, the committee recommended that GST on pesticides should be reduced from 18 per cent to 5% so as to benefit the farmers and to increase the agricultural production in the country.

Sources said that the Finance Ministry after examining the proposal to reduce duty on pesticides may put the issue before the GST Council that has the final say in matters of indirect taxes. The GST reduction will help bring three-fourth of the total farmers in India, who are outside the ambit now, to protect their crops without causing any substantial loss to the central exchequer. This will help farmers harvest crops with minimal loss and secure better returns too.

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