'Many present complications may survive under GST'

How does the proposed Goods and Services Tax (GST) affect importers and exporters?

The first discussion paper released by the Empowered Committee (EC) of State Finance Ministers, says additional duty of customs levied under Section 3 of the Customs Tariff Act, 1975 (i.e. CVD and SAD), will be subsumed under GST and set off for the same will be available as Input Tax Credit (ITC). At present also, Cenvat Credit of these duties can be taken. So, GST may not make any difference there. The paper says surcharges, cesses and service tax will also be subsumed under GST. At present, credit of service tax can be taken but credit of cess or surcharge is not available.

Interestingly, the EC does not propose to subsume basic customs duty (BCD) under GST. So, BCD is likely to remain as a protective cushion for domestic producers and as a cost for importers, with no Cenvat Credit available of the same. To that extent, the export promotion schemes like advance authorisation and duty drawback may stay.

The discussion paper says exports will be zero-rated. In other words, the present system of excise rebate or removal under UT1/bond for export without excise duty payment will continue in some other form. To that extent, the GST may be no different. But, with several other taxes like entry tax, cesses, etc getting subsumed into GST, there could be gains by way of removal of irritants and simplification of procedures.

It is too early to say how the proposed GST will handle refund of unutilised credit on account of exports under bond/UT1. At present, tax on certain services provided during the course of exports are exempted. Whether similar exemptions will be available under the new GST regime is not clear. As a policy matter, the discussion paper does not recommend exemptions and refunds. Even in case of area-based exemptions, it recommends abolishing these.

The EC, however, proposes that zero-rating of exports be extended to Special Economic Zones (SEZ), too. However, it is not clear whether supplies to SEZ from the Domestic Tariff Area (DTA) will have to suffer GST. The paper says zero rating will only be allowed to processing zones of the SEZs. No benefit of zero rating to the sales from an SEZ to DTA will be allowed, which is the present position, too.

The discussion paper envisages exemption threshold limits for manufacturers (Rs 1.50 crore) and service providers (Rs 10 lakh) and compounded cut-off rates (0.5 per cent) for small dealers (turnover up to Rs 50 crore). So, many of the present complications in the excise and service tax laws are likely to survive in some other form.

In any case, the proposed GST model envisages a continuous chain of set-off from the original producer’s point and service provider’s point up to the retailer’s level, which would eliminate the burden of all cascading effects. Major Central and State taxes will get subsumed into GST, which will reduce the multiplicity of taxes, and thus bring down the compliance cost. It deals with inter-state sales in an innovative manner through an Integrated GST (IGST).

The Union Finance Minister has assured in-depth and meticulous attention to the report so that the structure and design of GST are finalised quickly. His statement raises everyone’s hopes.

E-mail: tncr@sify.com