Bad news for farmers: GST to increase cost of tractor production

Inverted duty structure may up input cost by Rs 25,000 a unit, firms' working capital by Rs 1,600 cr

Tractor prices may go up by around Rs 25,000 after the goods and services tax is imposed because the gap between input and output taxes is wide. 

In a recent meeting, the GST Council addressed the issue of the inverted duty structure in various industries, including the tractor industry. Subject to a 28 per cent duty on components against 12 per cent on tractors, manufacturers would have faced an accumulation of credit. The council reduced the GST rate on clearly identifiable tractor components from 28 per cent to 12 per cent. 

However, TR Kesavan, chairman of the technical committee and immediate past president of the Tractor Manufacturers’ Association (TMA), said the relief was marginal and input costs per tractor would rise by Rs 25,000 The industry’s working capital would also be squeezed by Rs 1,600 crore, he added. 

The revision of the GST rate was limited to token components while engines, transmission and other parts would continue to face the 28 per cent duty, he said. The TMA has sought a change in component duties from 28 per cent to 18 per cent.

Mallika Srinivasan, chairperson and chief executive officer of Tractors and Farm Equipment Limited (TAFE), said, “Unfortunately this (the GST) has only been partially rolled out and the increase in input cost stands at Rs 25,000.” 

She urged the government to reduce the duty on all components that go into the manufacture of tractors. “This would be needed to ensure that the farming community does not suffer,” she added.

Ravi Menon, chief executive officer of Escorts, said tractor makers might not be able to pass on the higher costs to customers because of the anti-profiteering clause. Tractor makers typically hike prices by Rs 3,000-4,000 every year. Transitional provisions for stocks held at dealerships have also not been extended to the tractor industry because tractors were in the exempted category till now. The industry holds over 150,000 tractors in depots and dealerships, and denial of this relief will affect the farming community, according to the TMA.

LIKELY TO GET DEARER

• 28% duty on components
• 12% duty on tractors
• Industry says tractor prices would rise by Rs 25,000
• The council reduced rate only on clearly identifiable tractor components from 28% to 12%
• The industry's working capital would also be squeezed by Rs 1,600 cr, industry body says
• Tractor makers typically hike prices by Rs 3,000-4,000 every year
• Rise in price to effect the farmers, says TMA