Vat Seen Boosting Exports

The implementation of value added tax (VAT) is expected to boost exports from the country, leading tax experts opined.

Exporters will now be able to claim higher refunds on input taxes paid on the exported goods.

With zero rating of exports, the tax rate on export goods will be zero. At the same time, exporters will be able to claim the tax paid on inputs.

While exports were not taxable earlier as well, refunds on input taxes paid on exported goods was limited.

Prashant Deshpande, executive director at PricewaterhouseCoopers, feels VAT will give a "big boost" to exports.

"Currently, sales in the course of exports are given relief only at the stage of sale preceding the export. From now on, the relief will be given for tax paid at all stages within that particular state."

This means companies which have their entire supply chain within a single state will reap the most benefits on exports, as they can now claim full credit for input taxes paid all along the supply chain.

However, in case of companies which source their inputs from outside their state, the tax rebate will not be available.

Bhavana Doshi, partner at audit and consultancy firm KPMG, said: "The transparency ushered in by VAT and the full credit available to exporters are reasons why VAT encourages exports. While it would be difficult to say how much additional benefit an exporter would get, it could be about 2-4 per cent, depending on the case."

Exporters will also be able to claim refunds faster than companies selling goods domestically.

Rohan Shah, managing partner at law firm Economic Laws Practice, said: "As per the legislation, the input credit is refunded immediately to exporters on filing their monthly returns. However, for domestic sales, the refund could take anywhere between 12-36 months."