Tuesday, June 27

How GST will Impact the Import Export Business

Amid chaos among importers, exporters, traders and manufacturers on how tax will be charged & collected under new tax system; GST (Goods and Services Tax) is just few days away to kick off. From 1st July 2017, the existing taxes on trading of goods and services will be subsumed under new law of tax collection.

Let’s take a look on impact of GST through some important Questions and  Answers on GST for exports and imports.

What is Goods and Services Tax (GST)?

GST is a destination based tax, levied on the consumption of goods and services. The tax will be collected at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In short, only value addition will be taxed and its burden will be borne by the final consumer.

What Destination based Tax on Consumption Exactly Means?

According to Indian Government notification, “the tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.”

What are CGST, SGST and IGST?

CGST or Central GST covers the areas where Central Government has the powers to impose and collect the tax, while SGST or State GST covers the areas where State Government has the powers to impose and collect the tax.

IGST or Integrated GST is for movement of goods within the states of the Indian union. The tax will be levied and collected by the Union, but it will be transferred over to the states.

Which Existing Taxes are proposed to be subsumed under GST?

The GST would replace the following taxes:

Taxes currently levied and collected by the Centre:

  • Central Excise Duty
  • Excise Duties on Medicinal and Toilet Preparations
  • Additional Excise Duties on Goods of Special Importance
  • Additional Excise Duties on Textiles and Textile Products
  • Additional Customs Duties (commonly known as CVD)
  • Special Additional Duty of Customs (SAD)
  • Service Tax
  • Central Surcharges and Cesses so far as they relate to supply of goods & services

State taxes would be subsumed under GST:
  • State VAT
  • Central Sales Tax
  • Luxury Tax
  • Entry Tax (all forms)
  • Entertainment and Amusement Tax (except when levied by the local bodies)
  • Advertisement Tax
  • Purchase Tax
  • Taxes on Lotteries, Betting & Gambling

How would the Import Export of Goods/Services be treated under GST?

In the course of import and export, supply of goods and services would be taken as Inter-State trade or commerce under GST. It comes under Integrated Goods and Services Tax (IGST) under which tax would be levied on the supply of goods and services in the course of inter-state trade or commerce.

What are the Tax Structure and ITC in the case of Imports?

Import of goods and services would be considered as the inter-state supply of goods and subjected to charge tax under IGST. In addition to IGST, Basic Customs Duty (BCD) would be levied as usual on the import of goods. That means manufacturer, trader and service provider who imports goods and services shall be eligible to offset IGST paid on import of goods and services against output liability. But, the credit of BCD would not be available under proposed law of GST.

What are the Tax Structure and ITC in the case of Exports?

Under GST, no tax would be charged on goods and services exported from India. That means exports would be treated as zero rated supplies. However, credit of input tax will be available as refund to the exporters of India.