How GST Impacts on Indian Exporters?
As we have entered into a new era of tax structure in India, which is popularly known as Goods and Services Tax or GST, how it will impact exports and exporters? It will usher in a new regulatory regime for India’s exports. And for suppliers, the most significant impact would be blockage of working capital. Exim File is providing the details that how GST will impact on exporters.
Under Section 74 or Section 75 of Customs Act 1962, no amendments have been made to the drawback scheme. Also, option of All Industry Rate (AIR) and Brand Rate shall continue. Customs Duties in India, Compensation Cess and Integrated Tax paid on imported goods which are re-exported will be refunded.
Three months transition period is provided from the date of GST implementation i.e. 1.7.2017 to exporters. During this period, drawback scheme shall continue and exporters can claim higher rate of duty drawback (composite AIR) subject to following conditions:
- No input tax credit of CGST/IGST is claimed.
- No refund of IGST paid on export commodities is claimed.
- No CENVAT credit is carried forward.
Similarly, exporters can also claim brand rate for Customs, Central Excise Duties and Service Tax during this period. They can also claim AIR and refund/ITC under GST regime.
Refund of IGST Paid on Exports and Export under Bond Scheme
Under GST law, exports would be considered as zero-rated supply. Any exporter making zero rates supply shall be eligible for claiming refund under either of the following options:
(A) He or she may supply goods and services or both under bond or Letter of Undertaking, without paying integrated tax and claim refund of unutilised input tax credit; or
(B) He or she may supply goods and services or both, on paying integrated tax and claim refund of such tax paid in accordance with the provisions of the Central Goods and Services Tax Act.
For the option (A), exporters claiming refund of IGST will have to file an application through electronic mode on common portal either directly or through a Facilitation Centre notified by the GST Commissioner.
For the option (B), shipping bill filed by exporters shall be deemed to be an application for refund of integrated tax paid on the commodities that are exported out of India. Such application shall be deemed to have filed only when the person in charge of the conveyance carrying the export commodities duly files an export manifest or export report covering – bills of export and date & number of shipping bills.
Export Procedures under GST
Under GST regime, the format of manual and electronic Shipping Bill including Courier Shipping Bill has been amended. The new format of Shipping Bill will include GSTIN and IGST related information so as to ensure that export benefits like refund of IGST paid as well as accumulated input tax credit can be processed seamlessly. The products are traded on the basis of HSN Codes which is a global classification in import export business.
GST will Block Working Capital
Working capital is the fuel of every exporter. It is the fund available for company’s day-to-day operations and reflects the short-term financial health of the organization. Post GST, suppliers will have to arrange additional finance for payment of duties on inputs. And such finance would get blocked till the time refund has been received by an exporter. In nutshell, the more sophisticated a product, higher is the requirement for external sourcing of inputs, leading to higher need and blockage of working capital.
The above mentioned scenarios would help readers to get a basic idea of how GST impacts on exporters.
How GST Impacts on Indian Importers?
India is one of the fastest growing economies in the world and in the way to become the new global manufacturing hub. While manufacturing sector is experiencing a boost, foreign trade is also witnessing a great expansion. As Goods and Services Tax (GST) is now implemented, how it impacts the business of importers? Let’s find out.
On imports, there would be no impact on levy of Basic Customs Duty, Education Cess, Anti-Dumping Duty and Safeguard Duty. However, Additional Duties of Customs, which are commonly referred to Special Additional Duty of Customs (SAD) and Countervailing Duty (CVD), would be replaced with the levy of Integrated Goods and Services (IGST). To know rates of Custom Duties of all products, access Indian Customs Duty after GST. A brief summary of how roll out of GST impact importers:
Under GST, IGST and GST Compensation Cess would be charged on imports, except pan masala and certain petroleum products, which attract levy of CVD. In addition to this, few products such as tobacco items, aerated waters, motor vehicles, etc. would also attract levy of GST Compensation Cess, over and above IGST.
Calculation of Import Duty after GST in India
IGST Rate: The IGST rates vary product to product as these are prescribed as – Nil, 0.25%, 3%, 5%, 12%, 18% and 28%. The actual rate to an item would depend on its classification and be specified in Schedules notified under section 5 of the IGST Act, 2017. For example, the IGST rates applicable on goods under Chapter 98 are as under:
- 9801 (Project Imports) – 18%
- 9802 (Laboratory Chemicals) – 18%
- 9803 (Passenger Baggage) – Nil
- 9804 (Specified Drugs and Medicines for Personal Use) – 5%
- 9804 (Other Drugs and Medicines for Personal Use) – 12%
- 9804 (All Other Dutiable Goods for Personal Use) – 28%
Valuation and Method of Calculation: While calculating IGST on any product being imported, the value would be the aggregate of:
Value of imported article determined under sub-section (1) of section 14 of the Customs Act, 1962 or the tariff value fixed under sub-section (2) of that section.
Any Customs Duty chargeable on that article under section 12 of the Customs Act, 1962 and any sum chargeable on that article under any law for the time being in force as an addition to, or as duty of Customs but doesn’t include to tax referred in the sub-section 7 (IGST) and sub-section 9 (Compensation Cess).
For the purpose of charging GST Compensation Cess on imported goods, the value shall be assessable value plus Basic Customs Duty and sum chargeable as other customs duties. These include Education Cess or Higher Education Cess along with Anti-Dumping & Safeguard Duties. The IGST paid shall not be added to the value for the purpose of calculating Compensation Cess.
Changes in Import Procedures under GST
Importer Exporter Code (IEC): Under new taxation system, Importer Exporter Code or IEC has now been replaced with Goods and Services Tax Identification Number or GSTIN, which would be used for credit flow of IGST paid on import of commodities. From now onwards, all importers need to quote GSTIN in their Bill of Entry. In addition to this, in certain cases where GSTIN is not applicable, UIN or PAN will be accepted as IEC.
Bill of Entry Regulations & Format: In order to add additional details in the Bill of Entry such as GSTIN, IGST rate & amount and GST Compensation Cess & amount, the Government of India has amended electronic and manual formats of Bill of Entry including Courier Bill of Entry.
Import under Export Promotion Scheme and Duty Payment through EXIM Scrips
Under GST rule, Customs Duties will be exempted on imports made under export promotion schemes including EPCG (Export Promotion Capital Goods), DEEC (Duty Exemption Entitlement Certificate) and DFIA (Duty Free Import Authorization). IGST and Compensation Cess are chargeable on such imports. As per government notification, the EXIM scrips under the export incentive schemes of chapter 3 of FTP can be utilized only for paying Customs Duties or additional duties of customs on products that are not covered by GST at the time of import. The scrips can’t be utilized for paying Integrated Tax and Compensation Cess. Also, scrips can’t be used for paying CGST, SGST or IGST for domestic procurements.
EOUs and SEZ
EOUs/EHTPs/STPs will be allowed to import commodities without paying Basic Customs Duty (BCD) and additional duties leviable under section 3(1) and 3(5) of the Customs Tariff Act. GST would be charged on the import of goods or services or both used in the manufacture by EOUs which can be taken as input tax credit (ITC). Authorized business operations in connection with SEZs shall be exempted from IGST.
The duty of 18% shall be levied on all goods under the project import scheme.
IGST is fully exempted on passenger baggage. However, Basic Customs Duty shall be charged at the rate 35%. Also, education cess is applicable on the value which is in excess of the duty free allowance provided under the Baggage Rules, 2016.
Refunds of SAD Paid on Imports
Under GST regime, dealers/traders are liable to take ITC or Input Tax Credit of SAD paid on commodities imported prior to 1st July 2017. Also, a registered person is liable to take credit of eligible duties in respect of inputs received on or after 1st July 2017, but the duty on which has been paid under the existing law. These provisions taken together ensure that SAD paid by dealers/trades can be set-off against their GST liability as and when imported commodities are supplied by them in the domestic market. However, the products which are out of GST would be eligible for SAD refunds as earlier.
Imports and Input Tax Credit (ITC)
In GST, ITC or Input Tax Credit of the IGST and GST Compensation Cess shall be available to the importer and later to the recipients in the supply chain. But, the credit of Basic Customs Duty (BCD) wouldn’t be available. In order to avail credit of IGST and GST Compensation Cess, it is mandatory for an importer to declare his or her GST Registration Number (GSTIN) in the Bill of Entry.