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 a government official, quoted the financial daily. Also under consideration is a refund mechanism for taxes paid on local inputs used by exporters, it said.
The report further stated that 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 was quoted by the daily. The proposal is under close examination, said another official was quoted by the daily.
The report further added that 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. 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), quoted the news report.
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, adds the news report.
The report further mentioned that 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 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.
Exporters, particularly the smaller ones, have reportedly 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.