When one tries to revolutionise a system, more criticism is to follow than encouragement. I guess it is the human behaviour first to analyse the negativities and then switch to positivities. Goods and Service Tax is one such reform which has received mixed review and slightly inclined towards pessimism. Introduction of One Tax for One Nation did serve to be an equivocation to the exporters. Export is the most important business activity of any country. Now whether the GST System ease out the process of export or further complicates it, is the matter of concern.
“Export “means when goods or services are sent from our country to another country against monetary consideration and realisation of foreign exchange earnings. As per section 2 (18) of Customs Act, 1962. “Export “means taking goods out of India to a place outside India. Increase in exports results in higher economic growth as it induces the purchasing power of the nation in the global market.
Export of Goods
A good is a tangible product which is visible and can be held.
The export of goods has been defined under sub-section (5) of Section 2 of IGST Act, 2017 as “Export of goods” means taking goods out of India to a place outside India.
Example: If I produce 100 tea cups and sell it to a company in Budapest, then I am exporting these 100 cups.
Export of Services
A service is an intangible element which is not visible and cannot be held but only experienced.
The export of services has been defined under sub-section (6) of Section 2 of IGST Act, 2017 as “Export of services “mean the supply of any service when,
- the supplier of service is located in India;
- the recipient of service is located outside India;
- the place of supply of service is outside India;
- the payment for such service has been received by the supplier of service in convertible foreign exchange;
- the supplier of service and the recipient of service are not merely establishments of a distinct person by Explanation 1 in Section 8 of IGST Act, 2017.
Procedure of Export
As the GST came into effect, the export of goods and services is treated as zero-rated supply, which means there is no tax or duty imposed on the export of goods or services at any stage in the supply chain and we can also claim the refund of input tax credit accumulated on account of exports.
- In case of the supply of goods that are prescribed under bond or Letter of Undertaking for the safeguard of the payment of integrated tax, refund of unutilized input tax credit will be made. In this case, the exporter can file a refund application on the GST portal.
- If the exports have been made without furnishing of Bond / Letter of Undertaking (i.e. with the payment of tax), the exporter can claim the refund of taxes paid on export as well as the accumulated unutilized ITC relating to such exports
- If the exporter is an agency of the United Nations or any embassy as specified in section 55 safeguards of GST may be prescribed. In that case, a refund can be claimed as specified under section 54 of the CGST Act. In this case, the shipping bill needs to be provided to claim the refund of the IGST
Impact of GST on Export
- Simplification of tax structure and minimisation of compliance costs for small businesses
- The input tax credit mechanism will reduce the cost of input and taxes paid by the exporters which will reduce costs for them. Input tax credit is the refund received of the amount of input tax paid while manufacturing a product.
- Evolution of an alternative GST mechanism for exports to ensure that SME exporters don’t face liquidity or working capital pressures.
- Lower cost of production increases the profit margin that the exporters receive, thus increasing the amount of currency entering into the Indian economy.
- Reduction in compliance costs and complexity of the procedure gives a streamline flow in the process exports thereby ensuring a positive behaviour in the global market.
- The basic customs duties are exempted under GST and exporters are not required to pay it.
- Non-availability of refund on time is increasing the working capital of the industries. Further increase in working capital increases the cost of production and thereby reducing the profit earned. Thus the amount entering the economy has been reduced.
- Confusion in paperwork and compliance to the time limits have made it difficult for the labour oriented industries like garments, carpets, jewellery, pharmaceuticals etc. to manage their exports as the countries that they export have declined the trade over concerns for a hike in price.
The blocked working capital under GST affecting the cash liquidity of small businesses, the Council disbursed their refunds through cheques for July and August from October 10 and October 18 onwards respectively.
The implementation of GST has been proved to be a blessing in disguise for the exporters due to the refund and input tax credit facility. But somehow they have not been able to receive the refund at the appropriate time. If these small hiccups are treated over time, it is going to be creating an upward graph of the Indian economy.