GST will have a MAJOR impact on your Exports and Imports – The upcoming GST will change the way we do businesses. It will also have a substantial impact on Exporters and Importers, and those who supply to Exporters. While GST will surely bring in some simplicity in the way we do duty optimization and calculations for exports and imports, it will come at a cost. The exporters may be in for a shock because of sudden impact on their working capital requirements and may have to queue up before the banks. Some confusions in the process of exports may be there in the beginning because of lack of clarity in say formats of LUT and Bonds, High sea sale provisions, etc. Yet, more confusions would be about duty credit scripts as there is no HSN code if the exporters want to transfer them.

In the ensuing paragraphs, an attempt is made to understand the impact under different situations from a layman’s perspective, without getting into the legal provisions and definitions.

In the GST structure, most of the exemptions that were hitherto there for various end uses would cease to exist. It is likely to be the case even for export related imports which presently enjoy exemption under various schemes of Foreign Trade policy and also in customs and excise provisions. As per GST law, imports into India would be deemed to be inter-state sales, and hence a duty equivalent to IGST on the item in India would be levied. This IGST would replace the current CVD and SAD on imports and would be available as input credit for all kinds of importers. Basic customs duty, Anti Dumping duty, etc.

Exports would be zero rated in entirety and all the GST on inputs would be refundable, unlike present system where some taxes like CST remain unadjusted and affect the cost of goods. While there would be no exemption on GST payable on the inputs, Exporters will get the refund of all the duties that will be levied on the inputs. They are also promised the facility of 90% refund of claims on provisional basis. However, the efficacy of this remains to be seen in the coming months.

The following table lists the impact to various Exporters and Importers:-

A couple of interesting points for imports and exports in the upcoming GST are:-

  1. Anti Dumping duty, Safeguard duty, etc. will be added to Value of Imported Goods along with Basic Customs duty to arrive at assessable value for IGST. It will increase the IGST payable substantially. Since this would be available for credit, however, the impact will be only towards cash flow.
  2. GST Compensation Cess wherever applicable will be available for credit but only to pay the same on output. This will create serious cash flow impact on such goods.
  3. Duty credit scripts like MEIS, SEIS are given to exporters under Chapter 3 of Foreign Trade Policy is likely to exempt only Basic Customs Duty on imports and not IGST or CGST and SGST. Earlier these scripts could pay a host of duties like Excise duty, Service tax, CVD, etc. This would suddenly mean a broad availability of such scripts and may mean plummeting of their premiums. In fact, premiums have already come down significantly in the anticipation. This would make these scripts attractive for general importers.
  4. Foreign companies selling online information and database access or retrieval services (OIDAR) to small unregistered recipients in India will have to either get registered and pay IGST or appoint a person to pay the same. B2B importers will have to pay on reverse charge basis.
  5. UN bodies and embassies will now have a simpler mechanism of getting exemption via refund mechanism. They will be able to take the refunds of the duties involved in supplies to them from India.
  6. International tourists coming to India and buying goods from here will now have the luxury of getting GST refund like other countries.

We will discuss the real impact with the exporters and importers in the coming weeks and will come back with the analysis.

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