Manish K. Pandey Editor | October 2017 Issue | The Dollar Business

Goods and Services Tax (GST) Council will meet in New Delhi on October 6. This would be its 22nd assemblance since the roll out of the new tax regime on July 1, 2017. Chaired by Finance Minister Arun Jaitley, the Council is said to be deliberating on the findings of the Group of Minister (GoM) on technical glitches and procedural problems on GST Network (GSTN) portal as well as issues faced by India’s EXIM community. Given the complexity of the new tax structure, not surprisingly, over two dozen issues have been identified in GSTN by a five-member GoM headed by Bihar Deputy Chief Minister Sushil Kumar Modi so far. And not to say, they all need immediate attention if the taxmen really want the exporting fraternity to gain from the implementation of GST.

The MSME sector, which is regarded as the backbone of the Indian economy, accounts for about 45-50% of India’s exports. No doubt, GST is expected to bring paradigm shift in the functioning of these growth engines. But then at what cost? That’s something worth pondering. The high cost of compliance associated with GST is making their businesses unviable. Hence, there is an urgent need to ease the burden of compliance on micro, small and medium enterprises (MSMEs). And it’s not a difficult task. All that the government needs to do is increase the threshold of GST’s Composition Scheme. The Composition Scheme should be made available to MSME taxpayers having an annual turnover of up to Rs.1.5 crore from the current turnover threshold of Rs.75 lakh. If this happens, it will not only come as a great relief to the MSME sector that has been grappling with many challenges that GST has thrown at it but will also make the Composition Scheme more attractive whilst benefitting the exchequer through improved compliance.

GST has also narrowed the ambit of duty credit scrip only to payment of basic customs duty, whilst earlier the utilisation of the scrip was allowed for the payment of customs duty, excise duty and service tax. This decrease in the avenues of utilisation is bound to have wide ramifications on exporters. Also, MEIS and SEIS scrips, which used to attract 5% VAT now attract 18% GST because the scrips fall under the residual category. This issue must also be addressed, otherwise GST will sharply reduce the incentive aspect of these scrips. If utilisation does not gets integrated with GST, the premium on these scrips is also bound to go down drastically.

Further, the ‘pay-first-and-get-a-refund-later’ mechanism under GST has been a cause of concern amongst exporters, particularly MSMEs, who are already burdened with high cost of credit and are on the constant lookout for working capital financing options. Although exports have been zero-rated under GST, to claim input tax credit on inputs required to manufacture exported goods an exporter is either required to pay Integrated Goods and Service Tax (IGST) [which can be claimed as refund once the product has been exported] or export under a bond or a letter of undertaking (LoU)]. In both the cases, MSMEs end up on the losing side – while it’s difficult for them to obtain a bank guarantee, paying IGST means stretching the working capital cycle. It’s like getting caught between the devil and the deep sea! The industry hence expects the government to pull it out of the situation through some policy instrument, preferably incentives. If that is not possible immediately, it should at least allow exports of goods and services without paying IGST till the time they come up with the mechanism to offset losses arising out of the new tax regime.

While export promotion councils (EPCs) and individual exporters have welcomed GST with open arms and agree that the GST regime will result in more transparency and ease of doing business, their concerns with respect to issues arising out of the implementation of GST are real and can have far reaching implications on India’s exports. Well, now that’s something too serious to ignore. You would agree!