Pesticides Manufacturers & Formulators Association of India

Pre-Budget Memorandum on Union Budget for the year 2007-2008, we strongly request

Reduction of Excise Duty on pesticides present Excise Duty is 16%, we propose 8% Excise Duty. If Excise duty is reduced to 8% -Total revenue loss is Rs. 112 Crores on account of excise on pesticides as against the gain of Rs.18,000/- Crores of crop yield. Pesticides are used by farmers to protect their crops.

We are sending herewith a copy of the PMFAI’s Pre-Budget Memorandum for the year 2007-08 containing its view and suggestions on Direct Taxation which may kindly be taken into consideration while formulation the Government of India’s Budget proposals for the year 2007-08, which we have submitted to the Hon’ble Finance Minister.

The present state of farmers in the country especially small & medium is in a very grave condition. Due to yield loss in crop varies from 30-50% from planting to storage due to less plant protection measures, which is a result of high cost of pesticides which is levied with 16% Excise duty, which has made pesticides costly and out of reach of farmers due to high cost. After investing in seeds, costly genetically modified seeds, fertilizers and irrigation farmers do not take required crop protection measures due to higher cost of pesticides and cotton farmers are the first victims of high cost of pesticides, it also adds to the costs per hectare of growing cotton. The result is suicides by farmers esp. in cotton growing areas where the crop yield loss results suicides by farmers.

I. Excise Duty Tax burden on farmers on pesticides due to 16% Excise duty

1. Basic Price of pesticide used by cotton farmers Rs.7000.00

(Spinosad 48 SC)

2. Excise Duty @16% Rs.1120.00

3. Total Rs. 8120.00

4. Total Excise Duty Burden on Farmers Rs. 1120.00

In the above case the Farmers pay Rs. 1120/- towards excise duty @ 16%.

Farmers are avoiding use of pesticides because of the high cost and therefore there is loss in crop yield to the extent of 30% to 50% amounting to Rs. 90,000/- Crores as per the Ministry of Chemicals & Fertilisers.

We are justified for our request of 8% excise duty on pesticides, which is used by the poor farmers. Please note White goods/computers/electronics item/automobiles-small cars, petrol and computer peripherals tyres all are lower excise duty from 4-8% used by higher income group. Please consider our mercy petition for reduction in excise duty from present 16% to 8% on pesticides. To justify our presentation please see the enclosed annexure.

We will be pleased to present ourselves for any explanations and clarifications that may be required by your honour. We also request you to give us suitable time for pre-budget hearing to put forward our case.

We would like to meet you to discuss the above matter and we seek your strong support for reduction of excise on pesticides. We also request you to call for the appointment with the Hon’ble Finance Minister on pre-budget exercise. Your assistance in matter will help farmers across the country.

With best regards,

President

·        Reduction of Excise Duty on pesticides present Excise Duty is 16%, we propose 8% Excise Duty. If Excise duty is reduced to 8% -Total revenue loss is Rs. 112 Crores against the gain of Rs.18,000/- Crores of crop yield, and farmer is beneficiary, esp. cotton farmers.

·        Increase in abatement from present to 40% to 45%

1.                  Classification & % Excise Duty – Pesticides are classified under chapter sub heading no. 3808.10 of the Central Excise Act. Pesticides comprise of both Technical Grade and Formulations.

2.                  Historical data of Excise Duty levied -

(a)          No Excise Duty on other farm inputs: - Realizing the importance of making available the farm inputs at a reasonable cost, particularly to the marginal farmer and exporter, the Govt has, rightfully exempted fertilizers and seeds from the purview of Excise Duty. However, pesticides which are at least an equally important input are taxed at 16% Excise Duty burden of which is not bearable by the farmer and exporters.

(b)         Subsidy on Fertilizers: - Understandably, in case of fertilizers the Govt. grants a heavy subsidy of more than Rs.12,000 Crores. However, paradoxically in case of pesticides, an unbearable 16% Excise Duty is charged when a subsidy on pesticides also needs to be considered.

(c)          Cheap power for irrigation: - Power is provided free to farmer in many states and at a con-cessional rate at the remaining places all over India.

Considering all the above it will be observed that the total burden of excise duty of 16% on pesticides is very high due to which the farmers are restricted to less us of pesticides resulting in loss of yield and incase of Cotton farmers it results in suicides. When the central government has announced the package in July 2006 of Rs. 16,500 crores as a relief to the farmers, we propose reduction in Excise duty from present 16% to 8% to give great relief to the farmers for future plant protection measures in order to avoid crop loss.

3.                  Pesticides-an important agro input used to protect crops from pests & diseases and also in public health by Municipal corporations

The Pesticide Industry has played a pivotal role in increasing the agricultural production by improving the productivity of Indian farmers. In-spite of this, our consumption of pesticides is very low (0.480 gms/ha) vis-à-vis developed countries (Japan-10,170 gms/ha, Taiwan-17, 000 gms/ha etc) due to various reasons including high cost.

The following is relevant: -

(a)          It has been estimated that use of pesticides not only saves crop loss of about Rs.90, 000 Crores (source Ministry of Chemical & Fertilizers) but also provides an insurance cover to the farmer by protecting his investment in seeds, fertilizers, irrigation and his hard labour from ravages of insects, pests, etc.

(b)          Total pesticides market is Rs. 7500 crores, Domestic Market is Rs. 4300 Crores and Export is Rs. 3200 crores.

Pesticides industry is a net foreign exchange earner as we have an export of Rs.3,000 crores. In fact, potential for export of pesticides is substantial. The Ministry of Commerce has already identified Pesticides/Agrochemicals as one of the thrust areas for export the Ministry of Agriculture is simplifying registration procedures for export.

Present state of farmers in cotton growing area six out of 35 districts account for 76% suicides. The yield loss in cotton crop varies from 30-50% due to less plant protection measures which is a result of high cost of pesticides which is levied with 16% Excise duty, which has made pesticides costly and out of reach of farmers due to high cost. After investing in seeds, fertilizers and irrigation farmers do not take required crop protection measures due to higher cost of pesticides, cotton farmers are the first victims of high cost of pesticides, it also adds to the costs per hectare of growing cotton.

(d)          Farmers are short of finance for purchase of pesticides which is levied with 16% Excise duty for e.g. a product called Spinosad 48 SC costing Rs. 7000/- a litre is subjected to 16% Excise Duty (Rs. 1120 of Excise Duty). This product is used by Cotton farmers and he has to pay Rs. 1120 for Excise duty which is an extra burden on poor farmers. Please see Annexure 1 to substantiate our views.

Crop Yield in q/ha (2000)

(e)          Increase in agricultural production can only be achieved by both Government and private industries helping the farmer and exporter by providing reasonably priced quality seeds, fertilizers, pesticides, power for irrigation, farm implements etc.

II. I. Excise Duty Tax burden on farmers on pesticides due to 16% Excise duty

1. Basic Price of pesticide used by cotton farmers Rs.2000.00

2. Excise Duty @16% Rs. 320.00
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3. Total Rs.2320.00
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4. Total Excise Duty Burden on Farmers Rs. 320.00

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2.             Reduction of Excise Duty will not be a revenue loss for the government.

A.     The consumption of pesticides for the year 2005-2006 approx. to be Rs.4, 000 Crores (includes Excise Duty @ 16%). Therefore, the maximum Excise Duty, which will be collected by the Govt., comes to Rs.640Crores (Rs.4000 Crores 16 X 16%). However, the Govt. and the country will gain as follows: -

F.     If the excise duty is @16% total revenue earned by government is Rs. 224 Crores

G.    If the excise duty is @ 8% total revenue earned by the government is Rs.112 Crores difference in the revenue is Rs. 112 crores only which is nothing if the loss of the crop of Rs. 90000/- Crores is considered.

Farmers are not affording to use the pesticides because of the Cost and
therefore there is loss to every one

Even if only 1/5^th of the loss is saved due to reasonably priced pesticides, the same comes to a staggering Rs.18,000 Crores worth of crop saved for the country. The price for saving of Rs.18,000 Crores crop will be only Rs.112 Crores.

II. Increase in Excise Abatement, which is currently to the extent of 40% of the MRP.

The abatement is the extent to which the duty is not applicable on the MRP. The abatement should be increased by 5% in the current abatement of 40% i.e. increase to 45%. The idea is to compensate for the increase in the excise burden after the excisable MRP was made inclusive of local taxes –the 4% VAT on pesticides.

III. Section 10 (23C) & 11(2): period of accumulation of income of charitable trusts.

The Finance Act, 2001 has inserted a third proviso to section 11(2) to reduce the period of accumulation of income of trusts from ten years to five years. Five years, in our opinion, is too short a period for accumulation sufficient Corpus. Interest Rates are fallen reducing the income of the trust. It is, therefore suggested that the period of accumulation of unspent income should be restored to 10 years.

We sincerely request Ministry of Finance for reduction in excise duty from 16% to 8% on pesticides total revenue loss is approx. Rs. 112 Crores that is like a drop in the ocean. But this will give great relief to all the farmers in the country and will encourage using more pesticides to increase yield of the crop. Country will save huge crop losses due to pests and diseases attack which is at the moment Rs.90000/- Crores as per the Ministry of Chemicals & Fertilizers. If due to excise duty reduction, crop loss is reduced to 20% it will amount to Rs. 18000 crores against the excise revenue loss of Rs. 112 Crores. The reduction in excise duty will also reduce the cost per hectare of growing crop.

We are justified for our request of 8% excise duty on pesticides, which is used by the poor farmers. Please note White goods/computers/electronics item/automobiles-small cars, petrol and computer peripherals tyres all are lower excise duty from 4-8% used by higher income group. Please consider our mercy petition for reduction in excise duty from present 16% to 8% on pesticides. To justify our presentation please see the enclosed annexure.