Impact of GST on Exporters
The role of input tax credit
The GST will mitigate the cascading effect of the multiple taxes under the current system. The facility of input tax credit will be available to exporters even in the case of state taxes (SGST), which is not available today. In simple terms, an input tax credit implies that while paying tax on the output, one can reduce the tax that has already been paid on inputs. Thus, one does not pay the same tax twice, and instead only pays the amount of tax on the value addition done.
This measure will reduce the costs of inputs and the amount of taxes paid by the exporters. The reduced costs act as an incentive for the exporters.
Export promotion schemes: MEIS and SEIS
The two main export promotion schemes in India, the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme (SEIS) will be continued post the implementation of the GST. Under these schemes, exporters with a certain amount of turnover are provided with duty credit scrips. These scrips allow for the exemption of duties paid on the import of raw materials. The amount of exemption is expressed as a percentage of the total turnover of the exporter.
In an event organized by the Federation of Indian Export Organization (FIEO), Commerce Secretary Rita Teaotia stated that these schemes will be aligned with the new tax system. According to her, the commerce ministry was in the process of reviewing the validity of these scrips in order to make them more realistic.
Tackling the duty drawback scheme
Under the duty drawback scheme, the exporters are provided with a refund of the customs and excise duties paid on the imported inputs. The GST legislation has a provision on a duty drawback for these inputs. This implies a refund of the taxes paid on both imported as well as domestic inputs. The duty drawback scheme majorly helps those exporters who produce goods that are not being taxed but still have to pay taxes on the inputs used in their manufacture.
Due to a higher rate of tax under the GST, exporters might face a cash crunch due to the blockage of working capital. Hence, they have expressed the need for an exemption mechanism instead of first paying tax and then claiming a refund.
Addressing this problem, the finance ministry has introduced a fast-track process for the refund of taxes and duties to exporters. 90 percent of the duties will be refunded within seven days.
“GST clearly provides that taxes must be paid and refunds will be provided. Since the regime is so structured, in order to ensure that there is a minimum pain to exporters, duty refunds will be provided within a week’s time,” Teaotia said.
The remaining refund of 10 percent will be made after the verification of accounts by tax authorities.