GST on Exports and Imports

GST has been touted as the biggest reform post-independence with no insult to demonetization, which I consider, is a massive reform itself in a country like India. Exports & imports have been critical in driving this country’s economy for ages. So it is imperative to understand what GST brings to the table with respect to exports and imports. In the Pre-GST era, Customs duty, Excise, Service Tax and VAT played major taxation role on exports & imports. In the GST regime, Excise, Service Tax, and VAT have been replaced by GST and customs duty would continue to be part of the taxation system. Pre GST era: Imports In the pre-GST era, a person who imports goods to India had to pay customs duty, countervailing duty & special additional duty. Countervailing duty is levied at a rate equivalent to the rate of Excise on goods if they had been manufactured in India. Special additional duty is equivalent to VAT on the goods in India. The primary objective of imposing Countervailing duty & Special additional duty is to bring the imported product’s price at par with the market price in India to obviate price disparity. If the importer uses the imported goods to manufacture dutiable goods in India or provide taxable services, Countervailing duty paid on inputs was available as a tax credit. If the importer is just a trader, Countervailing duty on imports was not available as credit. Special additional duty paid on import is eligible for a refund, subject to conditions. However, no credit is given on customs duty paid by the importer. Example: ABC PVT LTD imports cricket bats from XYZ PTE LTD, Melbourne (Australia) taxation would be as belowPre GST era: Import of Services  A person who avails imports services had to pay Service Tax at the Service tax rate applicable in India. The importer can claim a tax credit of the Service Tax paid on import of services.  Pre GST era: ExportsExport of goods and services wasn’t taxed, i.e. tax on exports was NIL. An exporter could also claim a refund of the tax paid on inputs used to manufacture the exported goods or services.GST era: ImportsIn the GST regime, a person who imports goods has to pay customs duty and IGST. As mentioned earlier, countervailing duty & special additional duty levied on imports has been replaced by IGST under GST. IGST will be levied at the rate applicable to the imported goods in India. An importer can claim a full tax credit of GST paid on imports. Hence, importers who were unable to claim a credit of countervailing duty & special additional duty in the pre- GST regime can now claim a full tax credit of the IGST paid on imports. However, no tax credit will be given on Custom duty paid and it remains a cost for the importer under GST as well.Example: ABC PVT LTD imports cricket bats from XYZ PTE LTD, Melbourne (Australia) taxation would be as below●    Considering 18 % tax on cricket batsGST era: Import of servicesPost-GST, import of services would be taxed under GST as per the applicable slabs.Example: GST era: Export of Goods/ServicesExport of goods and services wouldn’t be taxed, i.e. tax on exports would continue to be NIL. An exporter can also claim a refund of the tax paid on inputs used to manufacture the exported goods or services.GST is slated to bring down the overall cost of exports & imports, however, only time would tell the actual implications of GST. So let’s brace up & embrace this change while the dust settles down & we get further clarity.
Kranthi Tilak Reddy
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GST on Exports and Imports

Kranthi Tilak Reddy
Blog
11th Jul, 2017
GST on Exports and Imports

GST has been touted as the biggest reform post-independence with no insult to demonetization, which I consider, is a massive reform itself in a country like India. Exports & imports have been critical in driving this country’s economy for ages. So it is imperative to understand what GST brings to the table with respect to exports and imports. In the Pre-GST era, Customs duty, Excise, Service Tax and VAT played major taxation role on exports & imports. In the GST regime, Excise, Service Tax, and VAT have been replaced by GST and customs duty would continue to be part of the taxation system.

Pre GST era: Imports

In the pre-GST era, a person who imports goods to India had to pay customs duty, countervailing duty & special additional duty. Countervailing duty is levied at a rate equivalent to the rate of Excise on goods if they had been manufactured in India. Special additional duty is equivalent to VAT on the goods in India. The primary objective of imposing Countervailing duty & Special additional duty is to bring the imported product’s price at par with the market price in India to obviate price disparity. If the importer uses the imported goods to manufacture dutiable goods in India or provide taxable services, Countervailing duty paid on inputs was available as a tax credit. If the importer is just a trader, Countervailing duty on imports was not available as credit. Special additional duty paid on import is eligible for a refund, subject to conditions. However, no credit is given on customs duty paid by the importer.

Example: ABC PVT LTD imports cricket bats from XYZ PTE LTD, Melbourne (Australia) taxation would be as below

Pre GST era: Import of Services 

A person who avails imports services had to pay Service Tax at the Service tax rate applicable in India. The importer can claim a tax credit of the Service Tax paid on import of services.

 

Pre GST era: Exports

Export of goods and services wasn’t taxed, i.e. tax on exports was NIL. An exporter could also claim a refund of the tax paid on inputs used to manufacture the exported goods or services.

GST era: Imports

In the GST regime, a person who imports goods has to pay customs duty and IGST. As mentioned earlier, countervailing duty & special additional duty levied on imports has been replaced by IGST under GST. IGST will be levied at the rate applicable to the imported goods in India. An importer can claim a full tax credit of GST paid on imports. Hence, importers who were unable to claim a credit of countervailing duty & special additional duty in the pre- GST regime can now claim a full tax credit of the IGST paid on imports. However, no tax credit will be given on Custom duty paid and it remains a cost for the importer under GST as well.

Example: ABC PVT LTD imports cricket bats from XYZ PTE LTD, Melbourne (Australia) taxation would be as below


●    Considering 18 % tax on cricket bats

GST era: Import of services

Post-GST, import of services would be taxed under GST as per the applicable slabs.

Example:

 

GST era: Export of Goods/Services

Export of goods and services wouldn’t be taxed, i.e. tax on exports would continue to be NIL. An exporter can also claim a refund of the tax paid on inputs used to manufacture the exported goods or services.

GST is slated to bring down the overall cost of exports & imports, however, only time would tell the actual implications of GST. So let’s brace up & embrace this change while the dust settles down & we get further clarity.

Kranthi
Blog Author

Kranthi Tilak Reddy is one of the co founders and COO of White Matter Advisory services P Ltd. He is an Engineering graduate from SRM University and has done his Masters in finance.Being a true go-getter and an optimist to the core he has grown up the ranks in banking industry at an astonishing rate, his last stint being Associate Director, Business Clients -South with Standard Chartered Bank. With over 10 years of association with SME businesses and clients he certainly brings rich vein of expertise to the WMA table but more importantly his alluring passion towards great and customer service” the foundation on which he asserts WMA has been built.

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