Indian biodiesel and edible oils producers are concerned that the country’s new goods and services tax (GST), due to come into force on 1 July, could ramp up the prices of their products.

The imposition of an 18% GST rate on biofuels would “adversely impact” the Indian biodiesel, which would fight “tooth and nail” against the new biodiesel and ethanol sales tax, Sandeep Chaturvedi, president of the Biodiesel Association of India, said on 31 May, according to Platts.

The biodiesel association was planning to approach the government and ask it to reduce the GST rate.

But a source from an Indian state-owned oil company actively engaged in biodiesel blending told Platts that although the price of biodiesel was projected to increase, nothing “definitive” could be said at this time.

No direct federal tax on biodiesel exists at the moment in India, but biodiesel distributors pay a maximum of 6% VAT, a state excise duty and other fees that generally drag the total tax on biodiesel to around 14%.

Should the government impose a flat GST on biodiesel, it could allow oil companies to do a VAT set-off, which in practice could reduce the total price on procured biodiesel.

Edible oil producers are also concerned about the new GST regime, which would see oilseeds attract a 5% tax, unlike most other agricultural products – such as grains and pulses – which are exempted from the new taxes, The Economic Times of India wrote on 22 May.

The expected increase has led to edible oil manufacturers locking up large funds, as they would be able to only partially recover the tax they pay on edible oil and de-oiled press cake.

“As per the indication given earlier, the industry was expecting that oilseeds will be included under a nil rate of tax like grains and pulses,” Davish Jain, president at Soyabean Processors Association of India, told The Economic Times.

However, under the government’s plans, edible oils would be included in the 5% GST bracket, while only the de-oiled cake would be exempt.

In addition to biodiesel and edible oils, the price of ghee – a type of clarified butter used extensively in Indian kitchens and one of the principal consumer products sold in the country – was expected to go up, as it would draw a GST of 12%, Agro & Food Processing wrote on 30 May.

The price hike would particularly hurt poor consumers who might no longer be able to afford ghee.

The GST reform – which is intended to streamline India’s sales taxes by imposing nationwide rates of 0%, 5%, 12%, 18% and 28% – was announced in May and is expected to come into effect on 1 July.

Critics have argued that the new ruling is confusing in its implementation and sets much higher rates on processed foods than fresh foods, which could hurt farmers and consumers.

“The Indian GDP in agriculture is dismally low and if food processing grows, agriculture GDP would also grow. Higher taxing will hamper the food processing industry, leading to a lowering of agriculture growth,” Agro & Food Processing wrote.