The Goods and Services Tax (GST) has changed the way businesses are conducted in India. Introduced on July 1, 2017, the indirect tax has had a significant impact on international trade in goods by changing the structure of import and export taxes and removing various indirect taxes and exemptions.
Under the pre-GST regime, imports of goods and services were subject to multiple state and federal levies such as customs duties, countervailing duties (equivalent to excise duties) and special additional duties (equivalent to value-added tax). The Single Integrated Goods and Services Tax (IGST) under the GST system replaced all these taxes. The importation of certain goods, however, continues to be subject to basic customs duties, school taxes, and other protective taxes, such as anti-dumping and custody duties. The current Indian government aims to increase the production and quality of India’s exports, as evidenced by the “Make in India” policy and the many tax benefits granted to exporters. Traders want to know how the GST will affect exported goods and the amount of tax paid on the raw material/input used.
This article will explain how the GST will influence the import and export scenario in India.
Integrated goods and service tax:
Imports subject to GST are treated as an interstate supply. Since the GST is a destination-based tax, the Integrated Goods and Services Tax (IGST) is levied in the state where the imported goods are consumed and the imported services are received.
The IGST can be paid using the input tax credit of the Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and IGST. The input tax credit is the credit that dealers can use for taxes paid on their purchases, when paying final tax on their sales.
In the case of CGST and SGST, no cross-use of the input tax credit is allowed. Which means that CGST’s input tax credit can be used for CGST and IGST, and an SGST input tax credit can only be used to pay SGST and IGST.
Tax returns:
An importer is required to file monthly income tax returns under GST. Under the previous law, the importer was required to file declarations under state tax laws for the purchase of goods (import of goods) and under central tax laws to claim countervailing duties.
Exemptions:
Previously, the transportation of goods by air and inbound shipments was not subject to the service tax. Under the GST, there is no such exemption.
Impact of Exim business:
The GST treats the import and export of goods as interstate trade under the Integrated Goods and Services Tax (IGST). If you are an exporter who sells goods that are GST zero-rated, you can claim a rebate for the zero-rated supplies. This will have two options:
- In the supply of goods or services prescribed under a bond or letter of commitment for the safeguard of the integrated tax payment, the refund of the unused input tax credit will be made. In this case, the exporter can file a refund request on the GST portal or through the GST facilitation center.
- In this case, a refund can be requested as specified in the CGST law. In this case, the shipping invoice must be provided in order to claim reimbursement of the IGST paid.
The following documents are required to claim a refund for GST exports:
- Copy of payment of fees.
- Copy of the invoice
- Some other documents prescribed by the government.
However, under the new changes to the GST, the supply of some goods and services will be treated the same as exports. These are-
- The provision of goods and services by any registered person against prior authorization.
- The supply is made to an export-oriented company (EOU) such as the Hardware Technology Park unit, the Software Technology Park unit, the Biotechnology Park unit.
- The supply of capital goods by any person registered against the authorization to promote exports of capital goods.
- The supply of gold by a bank or a public sector company against prior authorization in accordance with customs legislation.
Final thoughts:
The implementation of the GST is one of the most difficult decisions made by the Indian government. The transition from the GST system will not be easy, which will lead to several legal confusions and complications arising from the GST law. India’s tax structure is not yet in place, but in the long run it is bound to transform India into a foreign investment friendly nation. As a registered businessman, the GST not only helps India to grow economically, but also helps you keep track of your business activities when it needs to be mentioned in the GST business activity statement.
