Imports and Exports under GST

Foreign trade is an important determinant of the economic growth and development of the nation. It is imperative that imports to and exports  from the country register a significant year on year growth along with the manufacturing sector to promote a healthy economy. This growth would lead to an increase in domestic demand and strengthening of the currency. 

Current Taxation System on Imports- Exports

As per the current system, an individual/ business owner who imports goods has to pay a countervailing duty (CVD), customs duty and special additional duty (SAD). (Know more about the different types of customs duty). The rate of the countervailing duty is equivalent to the rate of excise in the country as if the goods had been manufactured domestically. In case the individual uses the imported goods as raw products to manufacture goods domestically, he is provided with tax credits on the CVD paid. The special additional duty is equivalent to the value added tax on sale of goods domestically. The customs duty paid on goods is not subject to refunds/ credits and is considered to be a major cost for the importer. These duties are imposed in order to bring out the true price of the imported goods in the market. Import of services would entail payment of service tax by the individual/ business that avails the service. Tax credit can be claimed by the importer who imports these services.

However, unlike imports, exports of goods and services are not subject to taxation, i.e., the rate of tax on exports is 0%. Also, the exporter can claim refund on the tax paid on imported goods that were used to manufacture the goods that were eventually exported.

Imports under GST

The introduction of GST ushers in a new tax regime wherein the loss of tax credit can be prevented and compliance can be maintained at various levels. Salient features of the Model GST Law pertaining to are mentioned below.

• An individual who imports goods/ services has to pay Basic Customs Duty (BCD) and Integrated Goods and Services Tax (IGST) as imports to the country will be considered as Inter- State supply as per the Model Law. IGST in this case would subsume both countervailing duty (CVD)  and special additional duty (SAD).
• There will be no change in the current rates charged for Basic Customs Duty (BCD) on the imported goods.
• In case of services, if the service provider is a permanent resident of a foreign country, the liability to pay the tax rests on the receiver of the service. This is in tune with the concept of reverse charge wherein the receiver of the goods is supposed to collect the tax from the provider and remit it with the government.
• CVD is currently charged based on the MRP of the goods. However under the new model law, IGST will be applicable on the transaction value and not the MRP. This would reveal the margin of the service provider which was not the case earlier hence capital restructuring might be required to mitigate the effects.
• Introduction of the ‘Import and Sale’ model- Credit will be provided equivalent to the tax which is paid during the import of the goods under this model.

Know more about imports under GST.

Exports under GST

• The GST will result in eventual elimination of barriers between the various states and hence make exports more competitive in the market due to integration of value chains.
• As under the current system, exports would be relieved of the burden of GST due to zero rating i.e. an exporter will be allowed to export the goods/ services without charging any tax and can benefit from IGST credits paid on imported goods and services as per section 38 of the Central GST Act, 2016.
• The exporter can also claim a refund of the tax paid on inputs used to purchase/ manufacture goods from the exported commodities.

Major central and state taxes are subsumed in GST, which will lead to an increase in the competitiveness of the Indian goods and services in the international market along with giving a boost to exports from India. Overall, the ensuing uniformity in taxation across the country are expected to reduce the costs of imports and exports and result in easier compliance.

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