GST rollout: Govt to modify parts of foreign trade policy
The commerce ministry will modify certain portions of the foreign trade policy (FTP) to align it with the Goods and Services tax, which is to be rolled out from July 1.
The ministry also proposes to come out with the mid-year review of FTP, a few months ahead of the schedule, before the GST rollout.
The 5-year foreign trade policy (2015-20) provides a framework for boosting exports of goods and services besides creation of employment and increasing value addition. The ministry was expected to complete the review by September but as the GST roll-out is scheduled from July 1, "we have to make changes in it and also prepone the completion of review", an official said.
In view of the GST, the ministry may have to make changes in chapters relating to incentives for exporters; duty exemption schemes; export promotion capital goods scheme and deemed exports.
As there is no provision of ab-initio exemption in the GST, exporters would have to pay the duties and then seek the refund.
"Due to these provision, the language of the policy requires certain changes," the official added.
FTP was announced in 2015 and it was stated that the ministry would conduct a mid-term review in September to see whether any tweaking is required in the policy to promote shipments. The policy sets a target of taking India s exports of goods and services to $900 billion by 2020.
In 2016-17, India's merchandise shipments aggregated at $275 billion. Further, manufacturing exporters have raised certain concerns over refund of duties and according to the Federation of Indian Export Organisations (FIEO) a certain portion of working capital would be blocked in the process with the government for about three months.
As per estimates, over Rs 1.85 lakh crore working capital of exporters may get stuck annually with the government under the GST.
Blocking of this amount would push up the manufacturing cost of exporters as they have to borrow more from banks. FIEO Director General Ajay Sahai said the government should prepare a software to ensure that refunds are granted quickly.
He added that the interest rates are about 12-15 per cent in India and borrowing at this rate would push up exporters' manufacturing cost.
The commerce ministry had earlier pressed the GST Council to keep exports out of the framework of the new indirect tax regime and levy lower taxes on labour-intensive sectors like leather, cement and plantation.
Refund of taxes takes about six to eight months and hence it is necessary to give an ab-intio exemption to exporters. Currently exporters are exempted from paying taxes. But under the GST regime, they have to pay the duties and then seek refunds.
'No surprises in GST rate fixation,' promises Jaitley
Finance Minister Arun Jaitley on Friday promised not to spring any surprises in fixing tax rates under the new GST regime, saying they will not be "significantly different" from current levels.
He, however, said companies should pass on to consumers the benefit of reduction in taxes under GST which will eliminate the current compounding effect of different central and state levies.
The GST Council, headed by Jaitley and comprising representatives of all the states, is scheduled to meet in Srinagar on May 18-19 to finalise tax rates on different goods and services after unifying at least 10 indirect taxes into the Goods and Services Tax (GST).
Speaking at CII's Annual Meeting, he said rules and regulations governing GST have all been framed.
"We are now in final stages of fixing tariffs for different commodities.
"The formula under which it is being done has also been explained and therefore nobody is going to be taken by surprise, it's not going to be very significantly different (from present)," he said.
The GST Council has finalised four rate categories of 5, 12, 18 and 28 per cent after unifying levies like central excise, service tax and VAT. Fitment will be done by adding the total incidence of current taxation (central plus state levies) and then putting the good or service in the tax bracket closest to it.
Jaitley said the GST Council has so far had 13 meetings and has never had to resort to voting to decide on any issue.
"And therefore all states representing different political complexions, have all agreed (on GST structure)," he said.
The Finance Minister said the Council is of the opinion that any benefit accruing from lower tax rates under GST should be passed on to consumers.
"Profit is not a bad word...but unfair enrichment is.
And therefore the benefit of reduction in taxation is a benefit that consumers are entitled to. And that's not a principle that can be seriously contested," he said.
The GST laws approved by Parliament have incorporated an anti-profiteering provision to ensure that the reduction of tax incidence is passed on to the consumers.