Mastering GST For Import-Export Businesses: A Strategy Guide

GST and Its Impact on Export of Goods and Services

The Goods and Services Tax (GST) has significantly transformed the taxation landscape in India, particularly for the export sector. As part of the government's "Make in India" initiative, GST has been designed to enhance the quality and output of exports by simplifying the tax structure and providing clear benefits to exporters. This section explores how GST influences the export of goods and services, focusing on zero-rated supplies, refund options for exporters, deemed exports, and the documentation required for claiming refunds.

Zero-Rated Supplies

Under GST, exports are treated as zero-rated supplies, meaning that goods or services exported are not subject to GST. This approach aims to make Indian exports more competitive on the global stage by ensuring that taxes do not add to the cost of exported goods and services. Exporters have two options for claiming refunds on the input tax credit, ensuring that the tax burden does not impact their competitiveness.

Refund Options for Exporters

Exporters can choose between two refund options under GST. The first option allows exporters to supply goods or services under a bond or Letter of Undertaking (LUT) without paying integrated tax and then claim a refund of the unutilized input tax credit. The second option permits exporters to pay the integrated tax and then claim a refund. This flexibility ensures that exporters can manage their cash flows more effectively and remain competitive.

Deemed Exports

GST also introduces the concept of deemed exports, where certain supplies of goods are considered as exports even if they do not leave the country. These include supplies against Advance Authorisation, supplies to Export Oriented Units (EOUs), and supplies of capital goods against Export Promotion Capital Goods (EPCG) Authorisation. Deemed exports receive similar benefits as regular exports, including the refund of taxes on inputs used.

Documents Required for Claiming Refund

The process for claiming refunds under GST requires specific documentation to ensure transparency and compliance. Exporters must furnish a copy of the return evidencing payment of duty, a copy of the invoice, and a document proving that the tax burden has not been passed on to another entity. This streamlined documentation process aids in the efficient processing of refunds, further supporting exporters.

GST Impact on Imports

The introduction of GST has also had a profound impact on the import sector, affecting how imports are treated under the new tax regime and the implications for importers.

Import as Inter-State Supply

Under GST, imports into India are considered as inter-state supplies and attract Integrated Goods and Services Tax (IGST) in addition to the Basic Customs Duty (BCD) and other surcharges. This treatment aligns with the destination principle of GST, where the tax is collected by the state where the goods are consumed.

Import of Services

The GST framework mandates that the recipient of services from a provider outside India is liable to pay GST under the reverse charge mechanism. This ensures that services imported into India are taxed similarly to domestic services, maintaining a level playing field between domestic and foreign service providers.

Transaction Value Based Valuation Principle

GST adopts the transaction value-based valuation principle for imports, replacing the earlier system where Countervailing Duty (CVD) was charged on the Maximum Retail Price (MRP). This change means that IGST, which subsumes CVD, is now charged on the transaction value of the imported goods, potentially affecting the working capital requirements of importers.

Refund of Duty

Under GST, the tax paid during importation is available as a credit under the "Import and Sale" model, offering a significant advantage over the previous regime where no such credit was available for Special Additional Duty (SAD). This change enhances the input tax credit mechanism, providing relief to importers.

Withdrawal of Current Exemptions

The GST regime has led to a review and potential withdrawal of various exemption notifications under the customs import tariff. This could fundamentally alter the structure of export-linked duty exemption schemes, affecting the attractiveness of schemes like EOU, STP, and Advance Authorization. The shift towards a refund mechanism for exemptions could necessitate a restructuring of business models for importers and exporters alike.

Conclusion

The implementation of GST represents a significant overhaul of the tax system for the import-export sector in India. By simplifying the tax structure, providing clear pathways for refunds, and treating imports and exports under a unified framework, GST aims to enhance the competitiveness of Indian businesses on the global stage. While the transition has required adjustments in business practices, the long-term benefits of GST for the import-export industry are clear: streamlined operations, improved cash flows, and a stronger position in international trade. As businesses continue to adapt to this new tax regime, the potential for growth and expansion in the global market looks promising.