The impact of GST on Indian exporters

Indian exporters claim that the delay in refunds under GST had tied up a huge amount of their money, thus significantly harming their business

The delay in processing of tax refunds under GST has locked up huge funds of the exporters which has hurt their business and also affected their ability to beat competition across the international markets. A delegation of exporters met the Revenue Secretary Hasmukh Adhia on September 19th. Adhia is heading the committee set up to look into the issues related with GST. In the meeting, the Federation of Indian Export Organization mentioned that the government should fast track the refund process for the exporters since almost Rs.65, 000 crore has been stuck in July-October period which has had a negative impact on the business.

GST was implemented from 1st July in an aim to achieve one nation, one tax. It involved a complete overhaul of the tax filing system. Under GST, the companies are given an opportunity to claim refund for the taxes they pay while buying inputs for the business. However, due to technical glitches, the government has pushed back the deadline for filing the GST returns which has delayed the refunds as well. Exporters claim that they are suffering the most. Earlier in the month, the Union Government took the complaints into notice and ordered a committee to be set up. The committee has the task of providing recommendations to fix these problems.

Indian exports were already not doing well before the implementation of GST. The rate of export growth in rupee terms has slowed from March to July, and rose again in August. The exporters’ organizations fear that this growth could be undone due to the impact of GST. The exporter organization mentioned that the export to GDP ratio, which is an indicator of relative importance of the international trade in the economy of a country, is down to 20% from the high of 25.43% in 2013. India is facing tough competition from various countries like China, Bangladesh and Vietnam in the international market.

The exporters need to pay GST for the inputs they purchase from the suppliers. They can then claim a tax refund from the government since exports are tax free. This has led to a sharp liquidity crunch since a significant amount of funds paid as taxes are locked up with the Government. The refunds for the taxes paid in July are expected only in December. The procedure of claiming refund is consuming more time than envisaged because the deadlines for filing returns are constantly pushed back. Due to a technical glitch in the GST portal, the government pushed the final deadline for filing the GSTR1 to October 10 from August 10. According to the information booklet provided to the exporters by the government, it has been mentioned that 90% of the amount of refund will be processed within a week of receipt of the refund application while the balance would be paid within a period of 60 days. If the full refund is not paid within 60 days, an interest at 6% will be payable.

However, no one has got any refund yet. While the exporters were hopeful that the refunds for July will come by the end of August but since the dates have been postponed, the refunds will not come before December. The exporters have requested the processing of refunds based on the GST3B and not wait for individual returns to be filed. Due to the delay in the processing of returns, the exporters are forced to take loans to fund their business activities which will add the burden of interest payment as well.

Software export associations like Nasscom have their own grievances. The exports are badly hit since firms exporting software services are not eligible for tax refunds on the capital goods purchased by them in order to provide these services. For a software export company, capital goods could include computers, networking devices and servers. They do not have duty exemption or refund for the GST paid. In the previous tax regime, the companies were entitled to claim an exemption on the taxation of capital goods. This is not available under GST. Hence, the companies are now demanding the government for a refund on taxes paid while purchasing capital goods.