The Hindu Business Line : VAT leading to rise in transaction costs for exporters: Study

THE implementation of the State-level value-added tax (VAT) has led to increased transaction costs for exporters in sectors such as leather and leather products, drugs and pharmaceuticals, and automobiles, according to the findings of a survey-based empirical study on the impact of VAT on exporters in India.

The study, commissioned by the Department of Commerce and conducted by the Associated Chambers of Commerce and Industry of India, covered 150 exporters from seven export-oriented sectors in Haryana, Delhi, Maharashtra and West Bengal.

The seven sectors were gems and jewellery, leather and leather products, drugs and pharmaceuticals, automobiles and auto components, engineering goods, textiles and handicrafts, and agro and food processing.

As per the study, exporters from the four States (in these sectors) reported about 10 per cent increase in their transaction costs in the VAT regime.

Among the seven sectors, the leather and leather products witnessed the largest increase in transaction cost at 11.43 per cent, followed by drugs and pharmaceuticals at 11.3 per cent, textiles, handlooms and handicrafts 8.56 per cent, automobiles and auto components 8.5 per cent and engineering goods 8.21 per cent.

"Exporters from all the five sectors, other than agro and food processing and gems and jewellery felt that VAT has led to increased transaction costs," the report submitted to the department recently said.

While the increase in transaction cost in agro and food processing sector was seen at 2.9 per cent, it was 2.5 per cent in gems and jewellery.

Exporters in these five sectors were of the view that the increase in transaction costs can be attributed to the present VAT refund system and the increased paper work as well as record keeping.

Under the present system, exporters have to first pay the VAT and then claim refund, after exports.

The report also said that the analysis is based on the ground-level transaction costs to exporters, which included costs due to Customs, port, licensing, banking/processing fee and refund delays.