The central government of India implemented the Goods and Service Tax (GST) back in 2016. Initially, the new taxation system created confusion concerning the possible impact of GST on the export sector of the Indian economy. Addressing the issue, the government released a set of guidelines. It was released on June 28th, 2017, to clarify the relevance of CGST, SGST, UTGST, and GST rates. The GST regime was introduced with the motive to turn the taxation system into a flexible process. The council currently aims to increase the output and quality export of services and products under the “Make in India” policy. Tax on imports and exports majorly contribute to revenue generation in India. That is why it’s crucial to explicitly understand the impact of GST on imports and export in India. In this article, you will read about GST’s impact on exports of goods and services in India.
What is GST?
The GST (Goods and Service Tax) is an indirect value-added tax that links various central and state taxes. It includes service tax, excise tax, entry tax, and state VAT. The current GST regime includes central and state taxes. However, integrated GST service tax (IGST) is levied on the domestic supply of integrated goods and services. The same applies to the import and export industries in India.
Impact of GST on Export of Goods and Services
Refund Under IGST Act
According to the refund mechanism under GST, exporters can claim for refund under the following circumstances:
- Paid Export Duties
- Unutilized Input Tax Credit
To receive a refund, exporters must apply for the claim. On completion, the refund is paid within 60 days from the date of receipt. In case the full refund is not paid, an interest rate of 6% is added to the refund. To create a better impact of GST on export, the council has currently automated the refund claiming system.
Grievance Redressal
Initially, the implementation of GST created confusion, making it difficult to understand various provisions of the CGST and IGST Act. Exporters needed clarification on refund processes and the procedure of filing claims. To rid exports of the hassles, the GST council of India introduced the formal Grievance Redressal Mechanism. It has enabled the exporters to access the Grievance Redressal services effectively.
Refund on Un-utilized (ITC) Input Tax Credit
The mechanism of the Input Tax Credit is a significant reason behind the implantation of GST in India. It is the process of claiming the credits on the GST amount. It is applicable for the tax paid on goods or services brought to advance a scheme or interest of your business. Exporters can utilize the Input Tax Credit by carrying it on to the upcoming financial year. However, exports that come under the GST rate of 5% are not eligible for a refund. It mostly applies to the garments industry to ensure competence in the global market.
Duty Drawback Scheme
The duty Drawback scheme has subsequently created a positive impact of GST on export. Exporters dealing with zero-rated goods under GST can claim a 99% refund on exports made to the United States. If a person has filed the U.S. Customs Service with authorized documents, he can claim for drawback. The claim is applicable to exporters, importers, and manufacturers
Deemed Exports
Under section 147 of the CGST and IGST Act, deemed exports are applicable for supplied goods manufactured in India. The following are the exports that are eligible to claim the duty refund.
- Goods supplied against Advanced Authorization by a registered exporter.
- Goods supplied to (EOU) Export Oriented Units.
- Supply of export promotion capital goods.
- Goods supplied to projects funded by the World Bank.
Deemed exports were introduced by the government to ensure the competence of Indian firms in international tenders. It provides an extended benefit for exporters under the GST regime, creating a significant impact of GST on export.
Reverse Charge Mechanism
Under this mechanism of the GST framework, the liability to pay GST remains on the recipient. It is applicable when the recipient buys goods and services from a supplier who is not registered under GST. It contradicts other GST regulations where most suppliers are liable to pay GST for the supplier made. However, this mechanism discouraged vendors from buying from unauthorized suppliers who are usually (SMEs) small and medium enterprises. Thus, the concerned authorities suggested boycotting this mechanism from the GST framework.
What are the Necessary Documents Required to Claim GST Refund on Exports?
Following is the list of authorized documents required to claim a refund on Exports:
- Copy of a return with evidence of payment on duties.
- Copy of invoices (e-invoices as per the updated GST format).
- CA certification document (to prove that the tax returns burden has not been passed).
- Other credentials are required by the government of India.
Conclusion
The impact of GST on export has been positive until now. It has enabled Indian firms to emerge successfully in foreign trade. The smooth claiming and availability of Input Tax Credits on services have helped companies have competitive prices internationally.
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