Experts Suggest Five GST Measures To Support Exporters

At a time when India’s merchandise exports have been declining for the last five consecutive months, tax experts suggest five key changes in Goods and Service Tax (GST) regulations to provide relief for exporters to enhance their global competitiveness. 

According to government data, India's overall exports (merchandise and services) in June 2023 are estimated to be USD 60.09 billion, down around 13 per cent from June 2022. In June 2022, the exports were USD 69.20 billion. 

In June 2022, overall imports are estimated to be USD 68.98 billion, a decline of about 14 per cent from 2022 figures of USD 80.12 billion. However, the trade balance in June narrowed from USD 10.92 billion to USD 8.89 billion.

While speaking at an event of MVIRDC World Trade Center Mumbai, experts pitched for five changes that are amendments in Rule 96B of CGST Rules, clarity on the recipient of remittance service in foreign trade, clarity on input tax credit facility under TR-6 Challan, valuation of deemed supply services and clarity on GST liability on shipment of samples.

Nirav Sanjay Karia, Partner and Advocate, Lakshmikumaran and Sridharan Attorneys said, "Even though the current slowdown in merchandise exports is due to global demand slowdown and current ongoing war between Russia and Ukraine (which has led to increasing in inflation, global monetary tightening and recession), the Indian government can support the exporter community by addressing existing gaps or ambiguity in the GST regulations applicable for export shipments."

Karia further informed that the government may bring clarity about whether Indian exporters are liable to pay GST on the reverse charge mechanism with respect to bank charges deducted by the overseas bank when a foreign buyer remits sales proceeds to the Indian exporter. 

“When the bank of the foreign buyer makes payment through the authorised dealer bank of the Indian exporter, the exporter is not the contractual recipient of the service of the foreign buyer’s bank. So, there is no settled legal position as there are contradictory judicial rulings on whether the service recipient is the Indian exporter or the authorised dealer bank or the foreign buyer. So, the government may clarify who is the recipient of service under this circumstance," Karia stated.

Chaitanya Ramesh Bhatt, Partner and Advocate, Lakshmikumaran and Sridharan Attorneys suggested the government to issue a clarification on whether exporters can claim an input tax credit against payment of integrated GST through TR-6 challan for import of input materials.

“Many Export Oriented Units (EoUs) and exporters who imported input materials under advance authorisation license have been barred from claiming refund against payment of IGST on their exports under Rule 96 (10) of CGST. The government may provide relief to these exporters," Bhatt added.

Experts also raised the ambiguity faced by exporters on the bifurcation of invoices under Input Service Distributor (ISD) and cross charge. Notably, the 50th GST Council in its meeting has stated that it will provide suitable clarification with respect to ISD and cross charge.

 Bhatt stated, “As per Schedule I of CGST Act, exporters have to pay IGST on reverse charge mechanism even for supplies made between related persons without consideration. For instance, if an Indian subsidiary uses the brand name of its foreign parent company, it is considered as deemed supply even though there is no royalty paid by the former to the latter. Here, the challenge is how to determine the cost or value of this supply as no consideration is exchanged between the parties.” 

Similarly, tax experts suggested that the government may clarify the treatment of GST liability on the shipment of sample goods to foreign parties (related or unrelated) or shipment of sample goods abroad for quality testing, research and development (R&D) and other purposes.

Vijay Kalantri, Chairman, MVIRDC WTC Mumbai pointed out, “India has made tremendous progress in streamlining the GST system within six years, while it took upto 10 years for many other countries to develop a well-functioning value-added tax system. At the same time, the government needs to address several unfinished reform agenda to attain the original intent of one nation, one tax.”

Kalantri suggested that government may simplify the system by reducing the multiple tax slabs to two and bringing down rates wherever required. "By reducing tax rates, we can improve compliance and tax collection. The number of items under the 28 per cent tax slab has been reduced from 227 in 2017 to 37 items currently. There is still scope to reduce the number of goods under this highest tax bracket; only sin goods such as tobacco should be taxed at 28 per cent slab and rates on other goods may be reduced," he added.

Meanwhile, after the conclusion of its 50th meeting, GST Council decided to slash the GST rate on some items, other sectors, like the online game industry, which received major criticism after it was decided to levy 28 per cent GST. Notably, GST on satellite launch services provided by private operators has been exempted.

Amidst the slowdown in global demand, India’s exports are likely to touch USD 1,000 billion by 2024 to 2025, said an analysis conducted by the PHD Research Bureau, PHD Chamber of Commerce and Industry (PHDCCI). "The dynamic policy environment provided by the government along with efforts of the exporters to connect with global value chains will enhance the export volumes in the coming times," said Saket Dalmia, President, PHDCCI.