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Imports and Exports under GST


Imports and Exports under GST

Foreign trade is an essential determinant of the economic growth and development of the nation. Imports and exports from the country must register a significant year-on-year growth along with the manufacturing sector to promote a healthy economy. This growth would lead to an increase in domestic demand and a strengthening of the currency. 

Current Taxation System on Imports- Exports

As per the current system, an individual/ business owner who imports goods has to pay a countervailing duty (CVD), customs duty, and special additional duty (SAD).

Know more about the different types of customs duty

The countervailing duty rate is equivalent to the speed of excise in the country as if the goods had been manufactured domestically. If the individual uses the imported goods as raw products to manufacture goods domestically, he is provided with tax credits on the CVD paid. The additional duty is equivalent to the value-added tax on the sale of goods domestically. The customs duty paid on goods is not subject to refunds/ credits and is considered a high cost for the importer. The Ministry imposes these duties during imports to determine the market price of imported goods. Importing services would entail payment of service tax by the individual or business that avails the service. Hence, the importer can claim the tax credit, who imports these services.

However, unlike imports, exports of goods and services are not subject to taxation, i.e., the export tax rate is 0%. Also, the exporter can claim a refund on the tax paid on imported goods used to manufacture the goods that were eventually exported.

Imports under GST

The introduction of GST ushers in a new tax regime wherein the loss of tax credit can be prevented, and compliance can be maintained at various levels. The following details the salient features of the Model GST Law:

  • An individual who imports goods/ services must pay Basic Customs Duty (BCD) and Integrated Goods and Services Tax (IGST) as imports to the country will be considered Inter-State supply per the Model Law. IGST, in this case, would subsume both countervailing duty (CVD)  and special additional duty (SAD).
  • No changes in the current rates charged for Basic Customs Duty (BCD) on imported goods.
  • In the case of services, if the service provider is a permanent resident of a foreign country, the liability to pay the tax rests on the receiver of the service. It adopts the concept of reverse charge, where the receiver of the goods shall collect the tax from the provider and remit it to the government.
  • For imports, the Maximum Retail Price (MRP) of the goods decides the charges for CVD. However, under the new model law, IGST will apply to the transaction value, not the MRP. In previous cases, this would reveal the margin of the service provider. Hence, to mitigate the effects, the importer may restructure the capital.
  • Introduction of the ‘Import and Sale’ model- Credit will be provided equivalent to the tax paid while importing the goods under this model.

Know more about imports under GST.

Exports under GST

  • The GST will result in the eventual elimination of barriers between the various states and hence make exports more competitive in the market due to the integration of value chains.
  • As per section 38 of the Central GST Act 2016, an exporter shall export the goods or services without charging any tax, as GST rates are zero under the current system. In addition, the exporter can also benefit from IGST credits paid on imported goods and services.
  • The exporter can also claim a refund of the tax on inputs used to purchase/ manufacture goods from the exported commodities.

As GST includes significant central and state taxes, production will result in higher quality. This would increase the competitiveness of Indian goods and services in the international market and boost exports from India. Overall, the ensuing uniformity in taxation across the country may reduce the costs of imports and exports and result in easier compliance.

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