GST is the main tax system in India. It was implemented in July 2017 and has been designed to simplify the process of paying taxes. It replaced multiple taxes, including excise duty, service tax, VAT (value added tax), customs duty and countervailing duty. GST aims to create a unified market across India by reducing transaction costs and creating a common set of rules for businesses. The government aims to increase the ease of doing business in India by making it easier for companies to comply with the law and pay their taxes.
In addition, GST is designed to be administratively simple and easy to understand. GST can be paid by businesses at any point during a supply chain. As such, it should reduce the number of steps required to complete a supply chain and encourage businesses to ship their goods more quickly. In addition, GST is intended to simplify import procedures and reduce customs duties on imported goods from other countries. Finally, GST is expected to reduce tax evasion because it will make it easier for businesses to keep track of their sales and payments as well as report any discrepancies.
GST can have both positive and negative effects on the economy of India depending on how well it isimplemented. First, one potential negative effect of GST is that it may increase the cost of goods for consumers by increasing prices in stores. However there could be some offsetting benefits by decreasing tax evasion due to increased transparency in reporting.
GST On Exports: How Will It Be Levied?
India levies excise duty on finished goods manufactured in the country. Export of raw materials or unfinished goods are not liable for excise duty under Goods and Services Tax (GST) as well. Hence, exporters were paying only VAT until now. But with the implementation of GST, they will also have to pay a separate cess on exports to ensure that they remain at a neutral rate. The new cess is one of the many anti-profiteering measures under GST which was introduced to tackle manufacturers who might take unfair advantage of price reduction due to the implementation of GST by raising their prices after the introduction of this indirect tax reform. So what does it mean for exporters? Let’s find out…
Under the current GST laws, exporters will have to pay a 2% tax on export of goods. The government has said that it will refund this amount, plus applicable interest, after the export consignments are shipped. A detailed mechanism is yet to be announced by the government. Instead of charging 2%, authorities may choose a higher rate so as to ensure that exporters are not at a loss. It is expected that the rate may be as high as 5% depending on the type of product and the ease of refund.
Documents Required for Claiming Refund on Exports
Consignments valued over Rs. 2 lakh have to have an additional document called an ‘Export Promotion Capital Goods (EPCG) Bond.’ The EPCG Bond is to be issued by either a Scheduled bank or a non- scheduled bank. The exporter will have to pay a fixed amount as security when he issues this bond. The bond should be issued before the goods are shipped. This bond will ensure that the specified amount will be repaid if the exporter does not fulfill his contractual obligations.
Will GST benefit exporters?
When GST was introduced, exporters were unhappy as they thought that it would increase the cost of production and thus make them uncompetitive in the global marketplace. As it turns out, they were right. Under the current system, a trader exporting goods has to pay import taxes on raw materials used to manufacture the finished product. Exports are not taxed as no finished goods are being exported. Due to this, the cost of production of finished goods is higher than the cost of raw materials. This price difference is called the ‘input price difference’. Thus, under the current system, while exporters are liable to pay taxes on raw materials, they are not taxed on finished goods. This has resulted in exporters incurring a loss of around Rs. 200 to Rs. 400 per suit. However, with GST, exporters are expected to incur a loss of Rs. 5,000 to Rs. 10,000 per suit.
Exporters were unhappy when the implementation of GST drove up their production costs. However, the government has started providing relief to exporters by reducing the GST rate on various items. The government has also announced that exporters will get a higher refund on exports. In order to avail this refund, exporters will have to issue bonds worth Rs. 5,000 to Rs. 10,000 per suit.