Impact of GST on Importers and Exporters: By CA Rashmi Jain

Impact of GST on Importers and Exporters

We are seventh largest economy in the world and presumably fastest growing. Imports and exports both show economic growth and the trends in domestic Indian demand for goods and services.

GST will change the way of doing business in the country. It will significantly impact international trade – customs duties computation will change; possible GST regime will see end of many duty exemptions and also affect foreign trade policy – more so when excise duty will merge in GST and deemed exports benefits under excise laws may come to an end. Import of goods into India now will be subjected to IGST by treating these as deemed interstate supply. Model IGST law clearly mandates this. As a consequence, the computation of customs duty under the GST regime would have two components, ie, basic customs duty and IGST. The proposed levy of IGST would subsume the current levy of countervailing duty (‘CVD’) and additional duty of customs (‘SAD’). The levy of IGST is likely to be collected by the Customs at the time of import into India and should be payable for each transaction, as against the monthly payment in case of IGST payable on domestic transactions.

Imports shall be treated as IGST transactions and there has been a constitutional amendment to this effect. It has been proposed that merchandise Imports coming to India will face GST on destination criteria. Duty levied under GST for Import in services will be based on reverse charge method. The crucial element here is that Indian has signed several trade agreements under which Imports coming from such partner countries are not liable to pay Import duty but with the implementation of GST whether they will be subjected to CGST and SGST having a national treatment.? MY TAKE is that yes they shall be subjected to GST unless Central Government through GST Council decides to continue exemptions. Very unlikely.

Exports would be relieved of the burden of GST by zero rating. As of now, in Foreign trade policy exports enjoy tax exemption at state as well as central level also government have given various incentives for export promotion. Under GST structure Center and States will separately administer a CGST and SGST respectively. It is known that CGST will subsume Central Excise duty, Service tax and the Additional Customs duties and for State, SGST will subsume VAT and perhaps also Entry tax (at the State level) and other taxes but export duty would not be subsumed. It is probable that service sectors would be required to file multiple refund claims for SGST element in every State, leading to increase in compliance cost and hardships. Moreover, increase in rates would lead to higher accumulation of credits and consequent impact on Company’s cash flows. MY TAKE is that REFUNDS will continue to be a thrown in flesh of exporters as documentation as per GST norms may prove tricky. With untrained officers examining such documents, uncertainty and chaos will prevail. Exporters should therefore demand a one window solutions to their problems and represent strongly to the Government and the State Governments. Multiple refunds under three GSTs will be quite a task and with a high tax administration cost.

The tax incentives extended under the FTP principally consist of exemption from Central levies such as Central Excise duty, Customs duty, Central Sales tax, etc. Zero rating of exports under GST ensures that Indian exports continue to be competitive in international market. This would also result in inverted duty structure as inputs or imports are taxed while exports are zero rated leading to accumulation of Input credit which has to be regularly claimed for refunds. Current indirect tax regime provides for lower or no customs duty on imports for importers who use them in producing goods that are subsequently exported. However under GST, imports would be subject to IGST (CGST + SGST) and any exemptions or additional levy will not exist. This would provide level playing field for domestic manufacturers vis-à-vis importers.

Dealers who are 100% exporters will be required to obtain duty paid inputs and then claim refund based on exports. This leads to unnecessary blocking of working capital. Separate refund granting authorities and separate refund applications for SGST and CGST/IGST refunds is not a good practice under GST.

Importers now, instead of showing import related activities in multiple returns through VAT, Customs and Excise, will now file one IGST return for each month and in all the States where they have registrations and import.

Model GST law says GST to be paid on transaction value of imported goods plus any duties/taxes, etc. levied under any other Statute. Will this mean that importers shall pay GST on import value plus customs duty? What about other duties like anti dumping duties, safe guard duties that are likely to continue as customs duty is not merged into GST. MY TAKE is Yes.

GST Law has adopted customs valuation principles. Added problems for importers? Unless clarified clearly in the final law, MY TAKE is that importers problems may go up. We know the litigation that is going on valuation issues for imports. And what about related party transactions? Plethora of judgments on this issue will continue to be applicable in GST Regime and transaction values be questioned for levy of IGST and ensuing litigation will be enormous.