GST – Is it really hurting Exporters..??

While the economy as a whole continues to go through the painful transition to GST, one section getting more impacted is the exporters. This is so since they receive considerable amount of money back as tax refund from the government and the same is getting postponed with the extension of deadline for filing of GST returns. So, how exactly has GST affected exporters more than others.?? A look at the issue..

GST, for exporters, has actually brought lot of cheers to them since it entails refund of 100% of taxes paid on inputs unlike in case of earlier regime when they received only partial refund of only VAT or refunds through some other scheme like duty drawback etc. However, the transition has not been very smooth even though the issue is more procedural rather than any fundamental challenge.

The problem is actually being faced by one section of exporter called “merchant exporter” as against “manufacturer exporter”. Merchant exporter are essentially traders engaged in exports. Like in any other trading activity, they also work with small margins of 2-4%. In the earlier tax regime, the exporters were exempted from paying taxes in advance whereas GST mandates compulsory payments of taxes due and refund of the duty subsequently after the returns are filed. The problem now has arisen since the deadline for filing of  returns for the month of July’17 had been extended to 10th Sept which means the exporters can get refunds only in October, meaning working capital gap for additional 1-2 months. While for “manufacturer exporter”, this was not such an issue since they work with sufficient working capital, for merchant exporters working with low margins, this implies serious constraint. Consider an example, the exporter pays Rs 18 as taxes for export of goods worth Rs 100 which is the additional outgo to meet GST requirement. At 14% interest rate, this means additional interest outgo of Rs 0.42 (for two months), or up to 20% erosion of their margin of 2-4%. While this may not be such a serious issues, any further delay has the potential to cause delay in future exports.

However, the issue doesn’t appear to be as serious as made out. Much to the credit of the government, it has shown sufficient agility to solve the problems. For one, sensing the delay, government had extended the duty drawback scheme till end Sept which allowed exporters to claim credit as per earlier arrangement.  As per government estimates, nearly two-thirds of exporters have claimed duty drawback, freeing them from any blocking of funds. In another important move last week, government replaced the requirement of furnishing bank guarantee with legal undertaking (LUT) for exporters since bank guarantees entailed considerable procedural hurdle and delays for exporters. LUT, on the other hand, is simpler, still puts a legal obligation on the exporter to fulfill the commitment.

So why is there still so much fuss.?? The extension of duty drawback scheme, meant exporters would not be able to claim GST which offered 100% refund and would get only partial refund as per earlier arrangement. Essentially, settling for 50/- today than opting for 100/- tomorrow, something not easy to digest…

TO GET A COMPREHENSIVE OVERVIEW OF INDIAN BUSINESS ENVIRONMENT, PLEASE CHECK –  https://www.amazon.in/dp/B072M2NT1X

(Image courtesy of meepoohfoto at FreeDigitalPhotos.net)

 

Leave a Reply

Your email address will not be published. Required fields are marked *