As exports witnessed the worst contraction in 15 months in October, the commerce ministry intends to step up consultations with the finance ministry on issues relating to the goods and services tax (GST) regime, including the delay in duty refunds, that were widely blamed for the latest export debacle. A mechanism for faster refunds features prominently in the list of issues that the commerce ministry wants settled at the earliest, a senior official told FE. Allowing exporters to use a scrip they get under the critical Merchandise Export from India Scheme (MEIS) to pay GST and treating supplies to export-oriented units from the domestic tariff area (DTA) as deemed exports are other key issues. “We have already taken up the issues with the revenue department and the GST council. We will step up consultations and see how best we can protect the interests of exporters,” the official said.
The commerce ministry is of the view that if the GST council allows a virtual payment mechanism for exporters under the GST regime, it will be one of the most important concessions for them. This is because SMEs, who account for a bulk of the country’s exports, usually use working capital to pay the tax and then wait for the refunds. The ministry, therefore, favours a virtual payment system whereby the exporters will pay notional duty and get notional refunds later — something the GST Council is yet to approve as yet. Similarly, in the pre-GST period, exporters were allowed to utilise the MEIS scrip for the payment of a host of taxes–including excise duty, service tax, value-added tax and basic customs duty. However, with the introduction of the GST, the government has permitted the use of such scrip for the payment of only the basic customs duty. Exporters complain such a move amounts to an abrupt withdrawal of legitimate benefits announced under the Foreign Trade Policy (2015-20) to make goods exports globally-competitive and adversely affects their cash flow.
For small and medium enterprises with limited access to credit, this remains a huge challenge. MEIS is the most important export promotion scheme under which the government provides exporters duty credit scrip at 2%, 3% or 5% of their export turnover, depending upon products and shipment destinations. The potential revenue forgone by the government on account of the scheme is estimated at Rs 22,000-23,500 crore a year.