Exporters may get an outright exemption from the integrated goods and services tax (IGST) on imported inputs that currently don’t face basic customs duty to help perk up the sector, which has been hit hard by rupee appreciation, said government officials. Also under consideration is a refund mechanism for taxes paid on local inputs used by exporters, they said.
A final call on the matter will be taken by the
GST Council, when it meets on October 6.
“A scheme is under discussion... It could be taken up by the council,” said one of the officials. The proposal is under close examination, said another official.
Exporters had access to duty-free inputs under the previous tax regime. Some of these inputs continue to be exempt from basic customs duty, but face IGST. Industry wants at least these inputs exempted under the GST regime to begin with. The industry says outright exemption would provide long-term solution to its woes.
“The biggest issue for exporters at present is liquidity. Firstly, there is issue of blocked refunds and the other is that payment of taxes has to be done upfront. Banks do not provide loans for payment of taxes… Exemption will help provide a solution on a long-term basis.
Expeditious refunds will help address the immediate problem of liquidity,” said Ajay Sahai, director-general of the lobby group Federation of Indian Export Organisations (FIEO).
Embedding of taxes makes Indian products uncompetitive as other nations do not levy any tax on goods meant for export.
The problem has been compounded for exporters as there has been a delay in the refund of taxes they paid on inputs, leading to working capital issues. If the GST Council decides on such a framework for exporters, it will resolve the issue of cash flows and bring them on par with their foreign counterparts.
The government is keen to address issues concerning exports expeditiously since the sector contributes substantially to job creation, as it seeks to revive growth that slumped to a three-year-low in the June quarter.
“The issue is being looked at with a sense of urgency,” said the second official. The government will ensure that the local industry isn’t put to any disadvantage on account of the strategy to help exporters. Finance ministry officials have been holding intensive deliberations on the framework of the scheme.
They discussed the matter on Monday and will meet on Tuesday with commerce department counterparts.
Exporters, particularly the smaller ones, have begun to face working capital issues with tax refunds getting stuck after the rollout of GST on July 1. They are also unable to price their products for advance Christmas orders as there is no clarity on refunds yet, in what could have ramifications for the broader exports sector.
RUPEE’S CLIMB HURTING EXPORTS
The rupee’s climb has eroded export competitiveness, with the currency strengthening more than 4% against the dollar since the beginning of the year, prompting intervention by the central bank, experts have said. The rupee closed at 65.12 versus the dollar on Monday, the lowest in six months amid global and domestic worries. Excluding the fall in the local unit’s value in the past few trading sessions, the rupee has gained about 5.50% this year.
According to FIEO, the cumulative order book position is down 15-20% from the year earlier. India exported goods worth $274.6 billion in FY17, just 4.7% higher than $262.2 billion in FY16.
Exporters have claimed that refunds worth Rs 65,000 crore in the July-October period are stuck. The government has disputed this figure.
According to another government official, refunds worth only about Rs 600 crore for July have been held up. Moreover, over 60% of exporters have opted for the previously available duty drawback scheme.
The refunds issue has cropped up largely due to the extension in the filing date for returns following technical glitches in the GST Network. At its last meeting on September 9, the GST Council had set up a committee headed by revenue secretary Hasmukh Adhia to look into the issues faced by exporters and draw up a plan for their resolution. The panel held detailed discussions with exporters and is now working on a framework to resolve them.
ET View: Refund Exporters Swiftly
An outright exemption may not be in line with GST law. In any case, there’s provision for exporters to provide a bond or letter of undertaking to avoid IGST. There’s also much scope for faster refund of taxes already paid, by better leveraging IT for instance. Shipping bills having IGST invoice need to be deemed as application for prompt refund of taxes paid along the value chain.
Source: economictimes.indiatimes.com