NEW DELHI: Exporters may get an outright exemption from the integrated goods and services tax (IGST) on imported inputs that currently don’t face basic customs duty to help perk up the sector, which has been hit hard by rupee appreciation, said Government officials. Also under consideration is a refund mechanism for taxes paid on local inputs used by exporters, they said.
A final call on the matter will be taken by the GST Council, when it meets on October 6.
“A scheme is under discussion... It could be taken up by the council,” said one of the officials. The proposal is under close examination, said another official.
Exporters had access to duty-free inputs under the previous tax regime. Some of these inputs continue to be exempt from basic customs duty, but face IGST. Industry wants at least these inputs exempted under the GST regime to begin with. The industry says outright exemption would provide long-term solution to its woes.
“The biggest issue for exporters at present is liquidity. Firstly, there is issue of blocked refunds and the other is that payment of taxes has to be done upfront. Banks do not provide loans for payment of taxes… Exemption will help provide a solution on a long-term basis. Expeditious refunds will help address the immediate problem of liquidity,” said Ajay Sahai, Director-General of the Federation of Indian Export Organisations (FIEO).
The Government is keen to address issues concerning exports expeditiously since the sector contributes substantially to job creation, as it seeks to revive growth that slumped to a three-year-low in the June quarter.
“The issue is being looked at with a sense of urgency,” said the second official. The Government will ensure that the local industry isn’t put to any disadvantage on account of the strategy to help exporters. Finance Ministry officials have been holding intensive deliberations on the framework of the scheme.
Exporters, particularly the smaller ones, have begun to face working capital issues with tax refunds getting stuck after the rollout of GST on July 1. They are also unable to price their products for advance Christmas orders as there is no clarity on refunds yet, in what could have ramifications for the broader exports sector.
Rise in Rupee impacting Exports
The rupee’s climb has eroded export competitiveness, with the currency strengthening more than 4% against the dollar since the beginning of the year, prompting intervention by the Central Bank, experts have said. The rupee closed at 65.12 versus the dollar on Monday, 25th September, the lowest in six months amid global and domestic worries. Excluding the fall in the local unit’s value in the past few trading sessions, the rupee has gained about 5.50% this year.