Exporters in India Suffer under GST Regime – Delays in Refund Processing, Malfunctioning System

Posted by Reading Time: 4 minutes

By Srinivas Raman

GST on Imports and Exports in India


The improper administration of the goods and services tax (GST) regime is adversely affecting exporters in India.

Exports are taxed under the Integrated Goods and Services Act, 2017 as per which exporters are supposed to enjoy ‘zero rated supply’, i.e. taxes and duties paid on input goods or services or final goods or services are to be refunded.

However, since the implementation of the GST, the online refund mechanism has either delayed processing or been non-operational due to technical glitches. Consequently, exporters are facing major financial and compliance related burdens. Some of the other challenges faced by the exporters are discussed below.

Professional-Service_IB-icons-2017RELATED: Tax Compliance Advisory

Exporters lose out on upfront tax exemptions

Under the erstwhile indirect tax regime, exporters enjoyed several upfront tax exemptions such as input tax exemption. However, these upfront exemptions have been removed under the GST regime, and the only exemption granted to exporters is the exemption from paying basic customs duty.

This is because GST works on the principle of refunds and not rebates. This essentially means that exporters will have to pay upfront integrated GST (IGST) for the procurement of goods and services, and the input tax credit will be refunded to them subsequently.

Exporters face working capital crunch and increased compliance burden

As per the IGST law, exporters have two options to claim refund. They can either export goods and services by furnishing a detailed bond/ letter of undertaking prior to each export without paying IGST and claim refund of input tax credit, or they can pay the applicable IGST and claim refund of IGST paid on export of goods and services. The former method is a documentation intensive process whereas the latter exposes the exporter to greater financial risk by reducing capital liquidity ratio.

In previous weeks, the electronic refund mechanism has not been operational on the official GST Network website. As a result, exporters have not received any refunds despite having furnished bonds or paid IGST. This has severely affected the availability of working capital for exporters as critical funds remain blocked by GST. Several small and medium sized exporters have even delayed shipments in order to cope with the working capital deficit.

Related-Link_IB-icons_2017RELATED: Impact of GST on Imports and Exports in India

Debt financing as a last resort for exporters

The working capital crisis has particularly impacted industries with high input costs, such as labor intensive sectors like leather, jewelry, and tea, among others. This has also affected employment in these sectors, resulting in greater retrenchment of the workforce.

In order to continue their business, exporters are also seeking bridge loans to finance their working capital requirements. However, availing debt financing is an additional liability for traders already finding it difficult to cope with the current GST regime.

Government finally responds to exporter concerns

Exporters are demanding a total upfront tax exemption under GST or temporary rebates due to the working capital problem caused by the inefficiency of the present refund mechanism.

The GST Council (which is part of the finance ministry) has recently decided to constitute a committee to look into export related concerns, and resolve existing problems. The council will meet on October 6, 2017 to deliberate on the matter. The commerce ministry is also expected to play an advisory role.

About Us

India Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEANChinaIndonesiaRussia, the Silk Road, & Vietnam. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout India and the Asian region. We maintain offices in Delhi and Mumbai and throughout China, South-East Asia, India, and Russia. For assistance with India investment issues or into Asia overall, please contact us at india@dezshira.com or visit us at www.dezshira.com.

Related-Readings_IB-icons_2017Related Reading:

dsa brochure

Dezan Shira & Associates Brochure

Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

2017-18 Tax Guide Thumbnail for Related Sources

Tax, Accounting and Audit in India 2017-18

The third edition of Tax, Accounting and Audit in India is updated for 2017, and provides an overview of the fundamentals of India’s tax, accounting, and audit regime. The guide also includes a detailed introduction of the Goods and Services Tax (GST) that was launched on July 1, 2017, representing the complete transformation of India’s indirect taxation structure. 

Payroll processing and compliance in India

Payroll Processing and Compliance in India

In this issue of India Briefing Magazine, we discuss payroll processing and reporting in India, and the various regulations and tax norms that impact salary and wage computation. Further, we explain India’s complex social security system and gratuity law, and how it applies to companies. Finally, we describe the importance of IT infrastructure, compliance, and confidentiality when processing payroll in India.