Our history started market with the barter system. That very system has evolved towards the terminology of import and export. It had been in the past that our domestic market was covered by the foreign goods. It was all because the economy of our country was weaker than our foreign partners owing to which the foreign goods were cheaper since there were no import duties and export to us was a far dream to catch.
Then evolved the feature of globalization, which came into effect by the universal code of trade, known as the world trade organization. Yet the scenario remained much the same. Since we agreed to a policy of avoidance of double taxation resulting in low import duty. But for our goods they had to face various indirect taxes in the country itself along with the export duty and finally the port duty of the foreign country resulting in the hike of prices for our goods.
Reforms for enhancing exports
India is counted amongst the major exporter for rice, pulses, spices, ores and other raw materials. But the global competition is giving a neck competition to the exporters of India. Seeing in this the government implemented various policies for tax relaxation for exporters so that there could be a huge margin for them from their competent competitors. But these policies were not enough.
So to enhance the export sector of our country the government went through the various reforms which were implemented in other countries for enhancing trade and boosting their economy. And finally the government has come up with the proposal of GST. The uniform tax for the whole nation.
The profit of GST
- Ø The policy heads of GST have proposed reform where exporters will be able to capitalize on the refunds and rebates from the taxes which will come under the cocoon of state taxes. The government of India has provided various fiscal incentives and exemptions to promote exports in the country. The schemes of the present will turn out to be Merchandise Exports from India Scheme after the implementation of GST. To familiarize the refunds the government has ensured that all the relevant data on GST rates will be available online which tends to do away with the verification of documents. A large number of organizations are actively looking for ERP systems that are GST compliant and will provide them competitive benefits.
How will the GST support our local market?
Let us suppose a simple example to understand our present tax status and the difference which will commence after implementation of GST.
- Ø 1st stage- A farmer buys raw material from the market and ploughs his field let us suppose a tomato field. Which costs him Rs. 10
- Ø 2nd stage- He cultivate the land and he receives healthy tomatoes which he sells to the vendor. He sells the product at Rs. 30 keeping Rs. 20 as his profit margin.
- Ø 3rd stage- The vendor takes these tomatoes to the market and sells them to a cold store where they are sent to the factory for their pulp. The vendor sells the tomatoes at Rs. 40.
- Ø 4th stage- The factory owner processes the tomatoes and prepare them in the form of ketchup which are preserved in tight necked bottles and lend out for sale at Rs. 90.
The above 4 stages are clear since we are aware of the process. Now to understand the process of taxes. In the first stage the market goods are purchased after implementation of sales tax i.e an indirect tax. As we know sales tax is imposed on the output. Suppose it is 10%. So in the 2nd stage 10% will be taxed on the output of Rest 30. Similarly sales tax will be implemented in the 3rd and the 4th stage. Here tax is imposed on tax paid. That means tax on tax. This is the present Central excise/Sales tax regime which carries a major problem and stupidity.
So contrary to the present stages of taxes the GST is a destination based consumption. So for the similar output there is a capping on the GST rate, which is implemented only on the raised output amount. The final rate for approval is still under consideration. This is how it is done in most developed countries. The bill seeks to shift the restriction on states for taxing the sale or purchase of goods and the supply of goods or services. The very good will be even ready for sale at the international market
Impact of GST on Indian Exports
To promote exports from India, governments at both center and state have provided various exemptions and incentives to exporters under the current indirect tax regime. The export-linked tax incentives extended under the Foreign Trade Promotion. The tax incentives extended under the FTP principally consist of exemption from Central levies such as Central Excise duty, Customs duty, Central Sales tax, etc. Zero rating of exports under GST ensures that Indian exports continue to be competitive in international market.
GST would be structured on the destination principle; as a result, exports would be relieved of the burden of GST by zero rating. Zero-rating of exports means that when goods are exported, no VAT is charged for the goods . At the same time, VAT paid on the inputs is also refunded. So the goods exported are shorn of all taxes. The countries, which have, VAT usually resort to zero-rating of exports. That makes it clear that even after introduction of GST, export duty probably will not be subsumed under the GST regime.
Sectors for consideration of Exports:-
SEZ (Special Economic Zone)-
GST is designed to ensure that all producers and distributors are treated as complete pass- through and exports are zero-rated, thereby no direct exemption will be allowed to the developers of, or units in, the SEZ. However, the purposes of setting up of SEZ were to encourage production of goods which are to be exported out of India, thereby even after withdrawing this direct benefit, units in SEZ would continue to enjoy exemption in respect of goods or services exported by it. Any sale by SEZ to Domestic Tariff Area (i.e. within India) would be taxable, as other goods and services are taxed in India. Present law with regard to exemption of SEZ is almost similar, the only change would be that technical jargons and complexities are removed.
Foreign Trade Policy
Presently in India, exemption schemes are available under the Foreign Trade Policy 2009-2014 and also under the relevant central excise and customs legislation. Though, there is some discussion in the government prepared documents (with respect to GST) on exemption currently available under the excise and customs legislation. Howsoever the doom of the exemption schemes currently under the Foreign Trade Policy has not been discussed at all these documents. It will be interesting to ascertain the continued relevance of various schemes (under the Foreign Trade Policy) under the proposed GST.
The current incentives can be classified into
(a) Pre-export schemes (e.g. advance authorization, EPCG etc);
(b) Post-export schemes (for example DEPB, SFIS, etc); and
(c) Industry specific schemes (for example EOU, STP, etc.).
The incentives under these schemes are mostly by way of exemptions with parallel notifications under relevant legislations (customs and excise). It is most likely expected that no such notifications would be imported into GST legislation. Applying this logic to the export schemes, it will not be erroneous to assume that its validity under GST may get limited to the extent of basic customs duty only.
So further comprehension of the Export impact of GST will be a mere supposition till further notice. Since the amendment regarding the implementation policy and the difference in the policies for international export and in boundary state export is still on the rounds of discussion. As it will be implemented under IGST, CGST and SGST still on the discretion of the GST policy makers.