GST impact on Import and Export

Indian economy is one of the fastest growing sectors in the world. The balance of payment is the basic tool to evaluate a country’s economic performance and it refers to the balance between import and export as no country is fully self-sufficient. These factors including the balance of payment and trading (import and export) decide the economic fate of a nation. The Goods and Service Tax come into play in India on 1st July 2017. As we already know GST is going to change the existing business structure in India, it will also transform the import-export scenario in the country. This article will discuss how GST will influence the import and export scenario in India.

Currently, GTS is making changes in export and import in India by withdrawing wide variety of previously levied indirect taxes and it will affect the Foreign Trade Policy (FTP) of the nation. Before discussing the impact of GST on Indian trading scenario, let’s have a glimpse of what are the import and export services to get a vivid picture of the whole thing:

The supply of any service will be treated as ‘Import of service’ under the following circumstances-

  • If the service supplier is located outside India

  • If the service recipient is in India

  • If the supply of service place is in India

  • If both the supplier and recipient of service don’t belong to a distinct person

In case of ‘export of service’-

  • If the service supplier is located outside India

  • If the service recipient is in India

  • If the supply of service place is in India

  • If the payment for such services is received by the service supplier in convertible foreign exchange

  • If both the supplier and recipient of service don’t belong to a distinct person

How does GST treat import and export of goods and services?

The GST treats the import and export of goods as inter-state trade under Integrated Goods and Service Tax (IGST). Thus, all the IGST provisions are applicable in any kind of good and service supply regarding import and export.

Tax structure and Input tax credit

Type of Supply
Export Import
Tax Structure 0% on supply Levy of IGST and Basic Custom Duty (BCD)
Input Tax Credit ITC and refund are allowed ITC of only IGST allowed, ITC of BCD is not allowed

Import, ITC and Tax structure

The import of goods and services is under IGST now with the roll out of GST on 1st July 2017. However, import has both IGST and Basic Customs Duty in present. The service providers, manufacturers, and traders of goods as well as services can balance their paid IGST against their output liability. But they cannot enjoy any credit for Basic Customs Duty (BCD) under the present GST structure. Citing an example here will be easy to understand this procedure. If a company called ‘A’ imports goods worth of INR 10,000, 10% basic customs duty is applicable on these imported goods. After importing, if the company experiences some extra expenses and sell produced goods at INR 45,000, it includes applicable respective GST rate.

The extra 10% BCD, 5% (550) CGST, and 7% (770) SGST revises the total import cost of the goods at INR 12,320. Along with these CGST and SGST rates, respectively 5% and 7% on import, the complete value of the goods in states is INR 50,400 (5% and 7% are applied on INR 45,000).

Export, ITC and Tax structure

As per the place of supply rules of the new tax regime, 0% GST is charged in any export of goods and services from India. The suppliers can avail the input tax credit under CGST/SGST and IGST. After paying the amount on input and input services, they can apply for the refund as per the 38th section of Central GST Act, 2016.

The end game
IGST covers the import and export sectors in India whereas export is GST free and import welcomes Basic Customs Duty along with IGST rate. As per the Federation of Indian Export Organization (FIEO), the exporters may face liquidity problems as the domestic companies may fall around 2% in the market. The merchant exporters may suffer from higher compliance costs. People can enjoy the fruit of GST in a long run, initial hiccups like liquidity problem in export is normal as the complete system is changing under the new tax regime.

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