GST impels review of export incentives

Posted by Daily Shipping Times on 02-05-2017        Tweet

NEW DELHI: With a national goods and services tax (GST) to take effect from July 1, the Government has started a review of the Foreign Trade Policy (FTP), which could see some export incentives getting reduced in scope.

The Directorate General of Foreign Trade under the Commerce Ministry has been meeting legal and tax consultancy entities on the issue. Particularly on scrip-based incentives such as the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme. The Ministry or its agencies issue a scrip to an exporter to be used for payment of central taxes such as Customs duty or excise duty and service tax on future procurement of goods and services. Such modes of payment would not be allowed after the GST regime begins.

Significant changes to these schemes are not expected, owing to their scale and the lack of alternative ones. “MEIS benefits are also given to exporters for the processing part, i.e any loss incurred due to inefficiencies in the Government processing part of the export. On that note, any major changes to the scheme will affect exporters significantly,” says L Badri Narayan, taxation partner at law firm Lakshmikumaran & Sridharan.

While exports will remain zero-rated under GST, there is also confusion on schemes under the Customs department such as the Export Promotion of Capital Goods one and the Advance Authorisation Scheme.

While the mid-year review of the FTP was scheduled for September, the imminent introduction of GST has given rise to the debate over whether it should be advanced. The five-year (2015-20) policy provides a framework for boosting of export of goods and services, besides creation of employment and increasing of value addition. It sets a target of export of goods and services to $900 billion by 2020; the figure in 2016-17 was $275 billion.

GST is aimed at reducing of existing duty exemptions, is one argument. "Proponents of this view say that as exports are anyway zero-rated (i.e. output is not taxed and input credits are allowed), the refund of input taxes would always be available. However, this view does not consider the huge working capital issue that would be faced by exporting units under FTP schemes,” says consultancy KPMG.