No exemption for MSME exporters

The GST Council has not agreed to the Commerce Ministry’s suggestion of exempting exporters from the micro-small and medium enterprise (MSME) sector from paying Goods and Services Tax (GST) instead of blocking their capital by making them pay first and then giving refunds.

The Council will, however, take up for consideration the Ministry’s other proposal of expanding the scope of the existing duty drawback scheme for exporters to include input tax (Integrated GST) credit in addition to basic customs duty, a government official told BusinessLine .

“The GST Council is not keen on exemptions at all, so our proposal of exempting MSME exporters has not found favour.

“There is definitely a concern that MSMEs working capital may get blocked due to possible delay in refund of duty paid, so we will have to ensure that payments are released as early as possible,” the official said.

Duty drawback is a scheme to refund input taxes paid by exporters, including customs duty, countervailing duties and a number of other input taxes.

Under the GST regime, duty drawback is supposed to include only basic customs duty while the other taxes are to be subsumed under the IGST and get refunded under the IGST mechanism.

“The Commerce Ministry has proposed that the duty drawback scheme under the GST regime should include both basic customs duty and IGST so that the refunds are made under one window and exporters do not have to run to two different places for their money,” the official said. The panel of senior officials constituted by Commerce Minister Nirmala Sitharaman, which includes former Commerce Secretary GK Pillai, has prepared a presentation for the GST Council on how the expanded duty drawback scheme under the tax regime could work.

“We have to wait and see if the GST Council is convinced. Even if the scope of duty drawback is not expanded immediately, it could always happen later,” the official said.

The GST regime, which primarily seeks to put in place a uniform tax regime across States, will have a four-tier tax structure: 5 per cent, 12 per cent, 18 per cent and 28 per cent for different commodities.

Exporters favour refund of IGST under the duty drawback scheme also because it is a known mechanism that will be under the control of the Centre.

“Exporters are apprehensive that IGST refund mechanism, which will also include State governments, may not work as smoothly as they have not had very good experience in the area of refund of VAT by States,” the official added.