Goods and services tax has a direct effect on the exports of India as many of the revenue subjects are associated with the industry. After the implementation of the goods and services tax, it has been found out that the industry started getting revenue and capital issue within the first month of the implementation. And now come, around 3 month after the spread of GST, the export industry is facing tough times right now due to non-availability of refund on time.
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20th September 2021: “Clarification relating to export of services-condition (v) of section 2(6) of the IGST Act 2017” Rad PDF
In the recent 22nd GST council meeting, it was decided that there will be six-month tax exemptions for the exporters. It is also decided that the returns for the month of July and August are scheduled to be refunded through cheques on 10 October and 18 October respectively. The exporters are also exempted from the heavy taxes and have been levied with the exempted category of 0.1% tax.
It is also decided to inaugurate e-wallet facility for the exporters and was quoted after the meeting, stating, “Since GST has no exemptions, for now, all exporters will be given an e-wallet. It will be given a notional amount as advance refund. And on the basis of this credit, firms can pay IGST and GST, and refunds will be offset against this”. The e-wallet facility is supposed to be launched in April 2018 according to the statements.
Post GST Era, there is a slow down in the export industry for some period of time, considered a staggering amount of INR 300 crore consignments were rejected after the implementation of Goods and Services Tax (GST) Regime in the country.
The industry also raised some of the issues such as the refund mechanism and the working capital shortage which was adversely influenced the exporters since GST was introduced in the country. Now the problem elongated to a certain level that the importers are now diverting their demands to other countries for a while. According to an official data surfaced regarding the exports were done, which mentioned lowest in the recent 8 months of statistics culminating in July. Not to forget the leftover handmade Exporting material which is been piling up in the factories for this previous month.
Read Also: GST Effects on Factory Production in India
Impact of GST on Labor-Intensive Industries
It observed that the post GST implementation labour intensive industry was declining and it includes the readymade garments, Gems and Jewellery, carpets and pharmaceuticals. While coming to the exact statistics, in the month of July it was seen a 40% direct decline in the production of handmade carpets as the comparison the previous year data shipments. All this happened due to the confusing paperwork and strict compliance based text scheme implemented for the first time in the sector. The chairman of carpet export Promotion Council, Mr Mahavir Sharma stated that “We are getting Price resistance from importers in the US as they are concerned about the price rise that would be passed on to them.” Going through the history of exports, India managed a total of INR 10000 crores of exports of handmade carpets every year.
According to the pay first-refund later mechanism of GST, there always a 20 to 30 cent blockage in every dollar 5 garments were sold. Managing director of Nath brothers Exim International Limited mentioned that in the July Sep quarter on a turnover of 10 crores, we can claim drawback of Rupees 50 to 55 lakh.
Cash Flow At Lowest
The continuous delay in refund of GST is creating a major cash flow issue for exporters, resulting in a credit squeeze. Despite the negative impacts, the export market of India is expected to grow by 15 to 19% in Financial Year 2018-19. The growth will be most noticed in the export of automobiles, pharmaceuticals, auto components, plastic goods and speciality and organic chemicals, says Ajay Sahai, director general of Indian Export Federation.
The reduction in the value of Indian Rupee and an increase in the prices of petrol and commodity have also motivated the growth in exports. The depreciation of Rupee has helped various exports markets like carpets, sports goods, handicrafts, marine products, apparels & textiles, agro-processed goods, etc.
Read Also: Special Refund Fortnight Scheme Comes to Clear All GST Refunds
Due to delay in GST refund and the unwillingness of banks to provide loans, exporters in India are struggling with the issues of low credit, which in turn is affecting exports. The cost of exporters has further increased by 1 to 3% after the addition of the letter of comfort and withdrawal of offer letter. Indian Export federation recommends that banks should keep a positive approach while providing ways to help the exports sector.
Exporters Demand Clarification Regarding GST E Way Bill
Exporters want to know the exactness of GST e-way bill that what will the norms while transporting goods from dry port to C port and between two economic zones. Exporters became cautious when RBI hinted that after GST implementation and delay in refunds made the companies trouble for working capitals and this could be the reason for the loss in October 2017.
Ajay Sahai, Director General of Federal of Indian Export Organisations (FIEO) favours that government should think to give a rebate in customs clearance in case of carrying goods from inland container depot to ports.
E-way bill, as per the GST norms, is a document which should be carried by the supplier if the consignment worths Rs. 50,000 or more and going inside or out of the state after online registration. FIEO has written in this regard to financing ministry to give clarification on such issues so that exporters do not face any problems in future.
Experts and Business Firms Views on GST implementation
According to a Delhi based businessman, it was cleared that the importers from the US and the European Union are not ready to pay high prices due to the GST implementation. He further that added “they will import from China. We Will renegotiate with them in a few months time.”
OP Prahar, chairman of the Export Promotion Council of handicrafts, said: “Many of our domestic plants have given a directive to buy only those products which are taxed at 12% and not 28%.”
Working Capital of Exporters Blocked Through ITC
The working capital of export industry has increased specifically for small and medium enterprises after the implementation of Goods and Services Tax (GST). Under GST, exporters firstly have to pay integrated GST (IGST) and they are entitled to get the refund once goods are exported. For smaller exporters, it is mandatory to furnish the bonds and letter of undertaking from the local commissioner, it creates a financial burden specifically for the exporters.
Yet, there is no clarification on the refund mechanism for exporters which is making the situation worst. Foreign Trade Policy (FTP) compliance implemented to incentivise exporters. Exporters are entitled to get refunds under GST on the tax they already paid. Under the previous tax regime (VAT), the exporters imported capital goods and raw materials without paying any duties, which didn’t influence the cash flow. The basic customs duties are exempted under GST and exporters are not required to pay it.
Ms Mani Senior Director of Indirect Tax at Deloitte Haskins & Sells Llp said: “Currently, the biggest concern among exporters is that FTP 2014-19 remains aligned to old taxes. Claiming export benefit has always been a documentation intensive process, hence clarity under the GST regime at this stage would be very beneficial. Since GST functions on the principle of refund and not exemptions, delays in the refund process severely strains working capital management of exporters.”
Parimal Shah, vice-president at MK Jokai Agri Plantations Pvt. Ltd is concerned about to wait for long period of time for claiming the refund on exporting goods. This might hurt tea exporters to increase prices in the country and hurting competitiveness. Midsize tea exporters and producers in the markets are Russia, UK, the European Union and Saudi Arabia.
In simple terms, from last few months, the working capital of exporters blocked due to the payment of integrated GST on exporting goods. This simply blocking the money of SMEs on exporting goods, which exporters invest this money on somewhere else. According to the Suresh Nandlal Rohira, the partner at Grant Thornton India Llp, coming to the country level, it is anticipated that nearly Rs 95,000 crores are being blocked starting from the purchasing raw- materials and claiming the refund on exported goods, which nearly takes four to six months.
Tea plantation is one of the key factors for India GDPs growth and creates a lot of employment opportunities. Parimal Shah said, “Clarity is yet to emerge on who should one approach for refunds—the centre or states. In the long term, we see a net-net gain of 1-1.25% on balance sheets of tea exporting companies, but for now, we foresee four quarters of disruption as the tea industry would take one financial year to get used to the new regime.”
India’s Export Affected Due To GST-Demonetization
According to a report of Industry Organization PhD Chamber, due to GST implementation and demonetization, although the increasing global demand in EU and US markets, the export industry has been affected a lot.
During this time, the exports of South Korea has increased to 16%, Malaysia to 15% and Indonesia to 17%. And we can remember the 2017-2018 as the missed chance to increase the exports in this period. In last financial year, the export increased 10% and reached 302.8 billion dollars which were expected to reach up to 325 billion dollars. Consequently, the trade deficit has increased to 45% and reached 157 billion dollars from 108 billion dollars.
