BY Dr Bhagirath Chaudhary, Founder Director, South Asia Biotechnology Centre
- Farmers are paying about Rs 15,000 crore GST annually on farm inputs to produce farm commodities
- Farmers are the only businessmen today who cannot claim tax credit & cannot set it off on the sales they make
- 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
Farm inputs such as seeds, biological & botanicals, fertilizers, pesticides and farm implements are important components of the farming system. These inputs form the basis of farmers’ business for raising successful crops. Farmers spend tremendous amount of resources to buy these inputs and use them as an intermediaries in his/her business. He/she pays the goods and service tax (GST) on farm inputs, which is costing about Rs 15,000 crore annually to smallholder farmers engaged in the production of cereals, pulses, edible oilseeds, fruits & vegetables etc. On contrary, farmers sell his produce through APMC mandi’s where he/she cannot set off the input credit tax because of nature of his/her business.
Notably, farmers are spending about Rs 15,000 crore on GST annually on farm inputs such as botanical, biological, pheromone trap & lure, micronutrients, fertilizers, pesticides, tractor, drip/sprinkler irrigation systems or other agri equipment to produce farm commodities to feed Rs 135 crore and also contribute significantly in export of agriculture and processed food products. Unfortunately, farmers are the only businessmen today who cannot claim tax credit and cannot set it off on the sale of his/her produce. 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. 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, and therefore there must be a mechanism for availing input tax credit. 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.
Apparently, the issue of GST came to light while implementing the project on fall armyworm, a voracious pest that has become a serious threat to maize production in India. The project safeguarding agriculture and farmers against fall armyworm (Project SAFFAL) is executed by South Asia Biotechnology Centre and supported by FMC Corporation and implemented in collaboration with key stakeholders in maize value chain. Fall armyworm (FAW), Spodoptera frugiperda is an invasive pest that has been a cause of concern for maize farmers in all maize growing areas since it was first reported in July 2018 in Karnataka, India. The project SAFFAL conducted large numbers of mega farmers’ awareness programs & mobilized grassroots extension & state agriculture department officials, researchers, RAVE students, Diploma in Agricultural Extension Services for Input Dealers (DAESI) retailers and NGO to help maize farmers deal with the devastating fall armyworm.
While purchasing the pheromone trap & lures, which are meant for monitoring of FAW adult male – a critical step in determining the ETL for farmers to implement control measures, we were shocked to pay 18 per cent 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 15,000 crore annually.
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. 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 per cent-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’ organisations 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 15,000 crore every year due to farmers’ inability to claim input tax credit. Therefore, the South Asia Biotechnology Centre – a not for profit organization has recently reached out the Union Minister of Finance to provide respite to farming community from the misbalanced GST regulations on farm inputs, which costs them Rs 14,500 crore per year and look into the possibilities of blanket exemption of GST on farm inputs – a necessary step to check increasing cost of production, which is an insurmountable barrier to doubling of farmers’ income – a clarion call of Prime Minister Narendra Modi .
(The South Asia Biotechnology Centre (SABC) is a not-for-profit scientific organization that aims at serving as a knowledge hub, helps in bridging the knowledge gap between science and society and facilitates the transfer of innovative farm technologies from the lab to the land. More about SABC at: www.sabc.asia and the Project Safeguarding Agriculture & Farmers against Fall Armyworm (Project SAFFAL): www.fallarmyworm.org.in)
