As the central government is in the process of overhauling the Goods and Services Tax (GST) framework, the edible oil industry on Tuesday urged the government to lift restrictions on Input Tax Credit (ITC) imposed from 2022, stating that they are hurting the industry and causing a working capital crunch.
The Solvent Extractors’ Association of India (SEA), in a letter to the Finance Ministry and the Commerce and Industry Ministry, said the edible oil industry pays higher GST rates on input goods and services used in the manufacturing and marketing of edible oils compared with the output GST rate. SEA said that while the GST rate on input items is 12 or 18 per cent, the GST on output is 5 per cent.
“This creates an inverted duty structure, resulting in the accumulation of input tax credit of over Rs 300 crore, which is seriously hurting the domestic industry. The denial of ITC refunds to edible oil units w.e.f. 18.07.2022 has created an alarming situation for the edible oil industry,” SEA president Sanjeev Asthana said in a letter to the government.
An inverted duty structure arises when the tax rate on inputs such as raw materials, services or components is higher than the tax rate on the final product.
Asthana added that the denial of ITC refunds is causing a working capital blockage and making it difficult to sell products at competitive rates. Seeking the restoration of accumulated ITC refunds for edible oil processors, he also asked the government to reduce GST rates on packing material for the edible oil industry from 12 per cent to 5 per cent, to better align input and output tax rates.
SEA said that in the absence of ITC refunds, the industry is facing a permanent loss of 0.75–1.25 per cent of turnover. “This distortion disproportionately impacts SMEs, weakens domestic refiners vis-à-vis importers, and ultimately fuels inflation in an essential commodity,” it said.
An email sent to the Finance Ministry remained unanswered at press time.
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In his Independence Day address, Prime Minister Narendra Modi announced the next major phase of reforms under the GST regime by Diwali, promising relief for the common man, small entrepreneurs and MSMEs through a reduced tax burden.
The Centre has suggested replacing the existing slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent with a broader two-slab structure of 5 per cent and 18 per cent, alongside a 40 per cent special rate for sin and demerit goods.
The Group of Ministers on Rate Rationalisation has also given its in-principle support to the Centre’s proposal to overhaul the GST design, even as member states raised concerns about potential revenue losses from rate rationalisation.
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