India's nascent biodiesel industry opposes proposed GST rate increase on biofuels

01.06.2017

The general sales tax of 18%, proposed on May 18, on Indian biodiesel and ethanol products that are used for blending into gasoil and gasoline, will greatly reduce the consumption of biodiesel and "[will be opposed] tooth and nail" so that the nascent Indian biodiesel industry can grow, said Sandeep Chaturvedi, president of the Biodiesel Association of India, on Wednesday.

The proposed GST rate on blendstocks is likely to be imposed by the government shortly, he said, adding that the imposition would adversely impact biodiesel consumption in India, which is presently in its infancy, and prematurely extinguish the industry.

The biodiesel association would approach the government, asking for a reduction in GST rates, he said, so as to give the clean fuels industry a chance to develop within India.

However, an official source from an Indian state-owned oil company that is actively sourcing and blending biodiesel into gasoil for local distribution, said that although the price of biodiesel looked like it would increase because of the new taxation structure, nothing definitive could be said at this time.

At the moment, there is no direct federal government tax on biodiesel but there were other levies like Value Added Tax and state excise duty, which were applicable on biodiesel, said the source.

"We are paying a maximum VAT of 6%," but the total tax imposed on biodiesel can reach around 14% when excise duty and other taxes are added, he added.

The imposition of a flat GST could allow oil companies to do a VAT set-off, which would in practice, reduce the total price of biodiesel procured.

State-owned oil companies are instructed to blend up to 5% biodiesel into gasoil by the Indian government, and although demand for biodiesel is "too much," according to the state-owned oil company official, there is very limited supply of it -- only about 5%-10% of total demand if a B5 mandate was properly fulfilled.

Additionally, the biodiesel supplied into the Indian mandate can only be derived from waste or by-products derived from crushing oilseeds.

BAI's Chaturvedi stressed upon the importance of allowing the biodiesel industry to develop first, before imposing any further levies.

At the moment, we are working on establishing a regulation framework for waste oils like used cooking oil or UCO, but there is no proper collection infrastructure for UCO in India and it would require time and investment, he said.

However, the state-owned oil company official said that very little waste product was being used to produce biodiesel within India, instead most producers were using palm stearin as a raw material.

Gasoil blended with biodiesel is being sold at an estimated 3000 petrol stations, concentrated in the states of West Bengal, Andhra Pradesh, Telangana, Orissa, Tamil Nadu, and Gujarat. Most of the production capacity is based on the eastern coast of India.

The price of local Indian biodiesel varies with delivery location, said the state-owned oil company official, so there is a range of prices depending on where it is delivered. But currently, the procurement price averages at at around Rupees 49/liter, which is equivalent to around $843.97/mt.

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