GST drawback scheme likely from Oct 1 as exports slip

      07/20/2018

The government may soon roll out duty drawback on goods and services tax (GST) to benefit small and medium exporters as fault lines increasingly surfaced in India's exports despite high growth in May and June this year.

This rollout is expected from October 1, along with an e-wallet scheme, as job creating exports sectors such as leather, handicrafts, handlooms, carpets, textiles and gem and jewellery have continued to decline despite merchandise exports clocking 20% growth in May and nearly 18% in June this year.

Ganesh Kumar Gupta, president, Federation of Indian Export Organisations, told a three-member committee headed by G K Pillai, former home and commerce secretary, is working out the GST duty drawback rates and is expected to submit its report in the next few weeks. After vetting, the government is likely to roll them out out by October 1.

The Pillai committee was set up after a parliamentary standing committee pitched for fresh concessions to labour-intensive exporting sectors to mitigate compliance burden in transitioning to the GST regime.

Gupta said e-wallet scheme too is expected to be announced by October 1. Under the e-wallet mechanism, a notional credit would be transferred to exporters' accounts based on their past record and the credit can be used to pay taxes on inputs.

Earlier duty drawback, a popular scheme to refund taxes like excise, customs and countervailing duties paid on intermediary items for exports, was withdrawn with the launch of GST on excise and countervailing duties. It was, however, continued for customs.

The large exporters may still prefer GST where one gets offset for taxes paid on intermediaries. Small exporters find it difficult and cumbersome to pay GST as it involved additional expenditure on auditing and the like.

India achieved highest ever merchandise exports of over $320 billion in 2013-14. In the face of global recession, exports declined, touching a low of $275 billion in 2016-17, but picked up to $300 billion in 2017-18. Since April this year, growth has been in double digits, touching 20% in May. India sustained over 20% exports growth during 2004-09, when GDP growth too averaged over 9% annually.

Gupta said that high exports growth in the last couple of months was mainly due to exports of petroleum products, chemicals and pharma. As global oil prices were high, Indian petroleum exporters reaped benefits and overall exports looked impressive in dollar terms.

"The concern in India's exports is that employment generating sectors such as textiles, handlooms, leather and handicrafts continued to witness the declining trend. Gem and jewellery, another employment generating sector, too has been doing badly though there is a small pick-up in recent months," Gupta said.

"This is not good," he said, adding the trade deficit is widening mainly because of oil, gold and electronics imports and there are fears that it will touch a record $200 billion this financial year.

So the government will have to look at measures to prop up exports. Re- introduction of a duty drawback scheme along with e-wallet scheme will small and medium exporters to reverse the falling exports in these sectors, experts said.

About 45% of India's exports are from MSME sector, which has been badly hit due to demonetization and the rollout of GST. MSME exports create jobs as well.

The parliamentary panel had asked the finance ministry to allow exporters to use the old system of refunds through the so-called duty drawback scheme. It also said GST compliance burden was causing job losses in labour-intensive export sectors.

Gupta said a delay in GST refunds too created a huge problem to small and medium exporters. After FIEO's representation and Prime Minister Narendra Modi's concern over falling exports, GST refunds have picked up since March this year. Till June, GST refunds of Rs 43,000 crore have been made to exporters. This delay in refunds was blocking working capital for small and medium exporters. Rotation of funds became difficult for them.

Two GST refund drives of a fortnight each have already been conducted and the third began this week.

E-sealing of containers is a major problem for exporters in all the Indian ports, as they are yet to acquire scanners. As a result physical examination of containers is being done and this was putting a lot of exporters into difficulty and delaying shipments, Gupta said, adding, continuing with the earlier practice of physical examination by customs officials at factory site will prevent this duplication of work and delay in shipment. The old practice could continue till scanners are procured at ports.