The Commerce Ministry has suggested to its finance counterpart that the exemptions given to exporters should continue under the new indirect tax regime, GST.
The proposed procedure of paying taxes and then claiming the refunds by exporters under the Goods and Services Tax (GST) would cause hardships for them, said an official.
A substantial amount of working capital would be locked in the process of paying duties and then taking refunds, he explained.
The ministry also wants that the distinction between the domestic tariff area and special economic zones should be maintained under the new regime.
The Finance Ministry, however, is of the view that the taxes should be paid in the first place but those exporters who are entitled to exemptions could take refunds, another official said.
Exporters on their part argue that locking of the working capital amount would hurt exports.
"Export sector is worried with the implication of GST on exports," Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said.
FIEO has raised several issues for the consideration of the GST Council so that the facilities currently availed by the sector continue as exports face competition from countries where the transaction cost is much lower.
Sahai said that the definition of exports in the Model GST law is at variance with SEZ Act.
"We need to synchronise the two to avoid any dispute. GST would also require suitable changes in many of the Schemes in the Foreign Trade Policy," he added.
He added that for exporters, the facility of duty free imports/procurement of inputs for exports should continue else it will lead to increasing requirement of working capital even for payment of IGST, CGST and SGST.
"This will hit MSME as their cost of capital is quite high, blunting their competitive edge in exports. The exemption will not lead to any loss of revenue as in any case exporters will be entitled to refund which affect their liquidity," Sahai said.
The government is working on the target of April 1, 2017 for rollout of GST.
Once implemented, GST will subsume various taxes including excise, services tax, octroi and other levies and the proceeds will be shared between the Centre and states.
India's exports have been in the negative zone since December 2014. After recording growth in June this year, they shrank again in July and August.