Impact of GST on Imports and Exports in India
The new goods and services tax (GST), launched on July 1, 2017, will change how business is done in India. It is likely to have a significant impact on the international trade of goods through changes in the structure of import and export taxation, and the withdrawal of various indirect taxes and exemptions.
In the previous tax system, the imports of goods were subject to import duties such as custom duty, countervailing duty (equivalent to excise duty), and special additional duty (equivalent to value added tax), and the import of services was subject to service tax.
Duty and GST on imported goods
Under the reformed tax structure, the integrated goods and services tax (IGST) replaces the previous indirect taxes imposed on the import of goods and services. Certain exceptions such as imports of pan masala and petroleum products, however, continue to attract levy of countervailing duties.
In addition to IGST, customs duty, education cess, and other protective taxes, such as the anti-dumping duty and safe-guard duty, also continue to be levied on imports of certain goods – carrying over from the previous tax regime. For the import of services, only IGST is levied.
Integrated Goods and Services Tax
Imports under GST are treated as inter-state supply. Since GST is a destination-based tax, Integrated Goods and Services Tax (IGST) is levied in the state where the imported goods are consumed and imported services are received.
IGST can be paid using input tax credit of central goods and services tax (CGST), state goods and services tax (SGST), and IGST. Input tax credit is the credit that dealers can avail for taxes paid on their purchases, at the time of paying final tax on their sales.
In case of CGST and SGST, no cross utilization of input tax credit is allowed. This means that input tax credit of CGST can only be utilized for CGST and IGST, and input tax credit of SGST can only be utilized to pay for SGST and IGST.
Import of services under GST
Under GST, the import of service is taxable if –
- The supplier of service is located outside India;
- The recipient of service is located in India;
- The place of supply of service is in India; and,
- The supplier of service and the recipient of service are not merely establishments of a distinct person.
Businesses must note that if the import of services is made on or after July 1, 2017, it shall be chargeable to tax under GST law even if the transaction was initiated before July 1, 2017. Furthermore, if the tax on import of services has been paid in part under the previous law, the balance tax shall be paid under the new GST law.
An importer is required to file monthly tax returns under GST. Under the previous law, the importer was required to file returns under state tax law for purchase of goods (import of goods) and under central tax laws for claiming countervailing duties. While filing monthly returns, importers must declare the goods imported in table-5 of the GSTR-2 form, and services imported in table-6 of the GSTR-2 form.
Previously, the transportation of goods by aircraft and inbound shipment was not liable to service tax. Under GST, there is no such exemption.
Impact on exports
Under GST, exports are treated as ‘zero-rated supplies’. If GST is paid at any point of supply against exports from India, a trader may either export without the payment of IGST under bond or letter of undertaking, or may pay the IGST and claim refund later.
In both cases, an exporter must provide details of GST invoices in the shipping bill.
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