Foreign trade is one of the major factors that determine a country’s economic growth. Exim policies are often a matter of priority for new governments as they try to recalibrate the political and economic narratives. Today, India is the fastest growing major economy in the world with a popular government, that is generally perceived as business-friendly, at the centre. Financial year 2016-17 saw a 4.7% jump in total exports by Indian companies. However, at the same time India also has a trade deficit of $105.7 billion, which means the imports still exceed its exports. Hence, the rollout of Goods and Services Tax in 2017 created anxiety and apprehension among business analysts who are already concerned with the rising import bill.
Under the previous system, various import duties were applicable on imported goods. These included countervailing duty, custom duty, and special additional duty among others. On the other hand, service tax was also levied on imported services.
Under the new system, all indirect taxes levied on imported goods & services are replaced by the Integrated Goods and Services Tax (IGST). But there are certain exceptions to the rules as well. For example, petroleum products and pan masala imports are still liable to countervailing duties. Moreover, protective taxes such as customs duty and education cess, among others, are still being levied on certain goods. Imported services, however, only attract IGST now.
Under GST, imports are treated as supplies from one state to another. So, as GST is a tax levied based on destination, the IGST is charged at state level, i.e. where the goods are being consumed or services being utilized.
GST on services imported:
GST provisions put services under IGST when,
- The service supplied is located outside of Indian territory.
- The service is received from within Indian territory.
- The place where service is supplied is in India.
Imports of services on or post 1st July 2017 are chargeable under IGST – even in case the actual transaction was dated earlier than the date GST came into effect. Also, if a partial payment of applicable taxes has been made under the former system, the rest of the tax to be paid is applicable as per the GST law.
Filing Tax Returns:
GST requires monthly tax filings as opposed to the previous system where importers filed returns as per State Taxation Laws for goods imported and as per Central Taxation Laws for declaring countervailing duties. Now, while filing monthly GST returns, importers have to declare the imported goods as per Table-5 and imported services under Table-6, respectively, of the GSTR-2 form.
Goods being transported by air and shipments inbound were not subject to service tax under the previous system. However, under GST, such goods are no longer excluded from taxation.
Impact of GST on Export:
In case of Zero-rated supplies, i.e. exports, the entire supply chain is tax-free. So, no tax is levied on input tax side or the output side. If GST is paid for exports from India at any stage in the supply chain, the trader can export without paying IGST. He could also choose to pay the IGST and seek a refund later.