The government of India has provided various fiscal incentives and exemptions to promote export in the country. Industries for which exports play a crucial role are oil and gas, IT, electronics, agriculture, automobile, chemicals, and pharmaceuticals. The GST is expected to foster dollar revenue for these industries. Various export promotion schemes such as the Merchandise Exports from India Scheme (MEIS) will continue after the GST. Coupled with this, duty exemption and remission schemes offered by the government are expected to get a boost with the new tax structure.
The number of ways in which GST will impact tax incentives and export competitiveness are discussed below.
After the GST implementation, exporters will be able to capitalize on the refunds and rebates from the taxes which will come under the ambit of state taxes (SGST). The refund and rebate on the export of services is likely to be increased substantially after the GST rates are applied. To make the refunds easier, government has ensured that all the relevant data on GST rates will be available online which tends to do away with the verification of documents. A large number of organizations are actively looking for ERP systems that are GST compliant and will provide them competitive benefits.
The GST is expected to alter the nature of tax incentives currently under the export drawback scheme and the rate of duty draw back. As per market experts, the rate of duty drawback will go higher. However, no definitive decision by the government has been reached so far. It is a concern for exporters to know if the import duty amount is presently waived off against few exemption schemes. If this continues after GST, traders and exporters will need foreign exchange from overseas buyers to complete their products. Currently, there is lower or no customs duty on imports. After the GST is put into effect, there will be zero rating of exports leading to an inverted tax structure which will prove beneficial. As a result, input credit will be accumulated and can then be regularly claimed for refunds. Thus, manufacturers will be placed at par with importers.
The GST will ensure zero rating of exports which will offer a competitive edge to the Indian exports. The government of India has already offered various export-linked tax incentives extended under the Foreign Trade Promotion (FTP) which includes various schemes such as Served from India Scheme (SFIS), Export Promotion Capital Goods Scheme (EPCG), Focus Market Scheme (FMS), Establishment of Export Oriented Units (EOU), Focus Product Scheme (FPS), and Special Economic Zones (SEZ). The objective of exemptions under FTP is to offer relief to traders and manufactures by sparing them from various central levies such as Central Excise duty, Customs duty, and Central Sales tax. After the GST implementation, there will be changes in the nature of exemptions against SGST and CGST. GST will ensure that the state taxes are also covered under these schemes.
The GST is expected to put an end to various tax & duty exemptions enjoyed by the SEZ developers. This may dampen investment, at least for the near future. In the current regime, the SEZ developers and units import their requirements without any duty or tax. In addition, all the supplies from the domestic suppliers to SEZ developers are exempted of any tax or duty, since they are considered exports. However with the GST to put into effect, this will change. The SEZs will no longer be considered in the ambit of exports as they are technically considered within the domestic border of the country. This will render SEZ equivalent to other domestic firms and are likely to attract different tax components of the GST—CGST, SGST or IGST. This means that the SEZ units are treated as equivalent to any DTA exporter. Hence they have to claim refunds of any unutilized input tax credits in GST. The government is trying to make the refund of the claims easier for all stakeholders.
Traders who are fully dependent on exports can claim refunds on the exports but will have to first obtain duty paid inputs. Replacing exemption with tax refunds will block a significant capital—Rs. 1,85,500 crores in a year, according to an estimate—for all manufactured goods exporters. The exporters will need separate refund applications for all SGST and CGST/IGST refunds and approval by various authorities will delay the whole process. This is a practice that has drawn criticism from exporters. Furthermore, what makes the refunds more unviable is the law that the interest rate for delayed payments by assesses is at 18% while for any delay by tax authorities it is mere 6%—which may lead to a loss to exporters.
Coupled with that, most companies, especially SMEs, face difficulty in obtaining working capital. Businesses which manufacture products that require advanced technology and expertise are in higher need for external sourcing of capital. After the GST is put into effect, companies will face significant constraints in marketing their products.
Although, evaluation of the impact of GST on exporters and indigenous traders is yet to be conclusively made, unarguably, the new tax structure will enhance the competitiveness of Indian export. On the whole, the GST will ensure that the process of getting tax incentives is streamlined and made easier for the stakeholders. In addition, the GST is also likely to expedite the process of getting various refunds for exporters, thereby boosting the overall economy of the nation.