It looks to be a cheerless Diwali for people working in India’s export industry as their long wait for Goods and Services Tax refunds continues, despite protests and complaints to the government. The new tax regime, which rolled out on July 1, subsumes all indirect taxes that businesses earlier paid to the state and Central governments.
Before the introduction of the Goods and Services Tax, exporters enjoyed upfront tax exemption, since exports were “zero-rated” or exempt from tax. In the new regime, however, they need to pay taxes on the goods they manufacture or purchase. These taxes can be claimed as refunds only after the goods have been exported out of India.
Since July, the government has collected around Rs 67,000 crores from exporters in the form of Integrated Goods and Services Tax, which is levied on the inter-state movement of goods. But exporters say the government has not processed the refunds. In the absence of refunds, exporters say they are facing working capital shortages, which means they have less money to invest in their businesses.
On October 6, the Goods and Services Tax Council – the top decision-making body for the new tax regime – announced that refunds owed to exporters for July will be cleared by October 10, and for August after October 18. Revenue Secretary Hasmukh Adhia said Rs 5,000 crores to Rs 10,000 crores would be available as refund. But exporters say they are still waiting for the refunds.
Said Suranjan Gupta, additional executive director of the export body Engineering Exports Promotion Council: “We provided the commerce ministry with details of exporters and refunds due to them but nothing has happened so far. Barely 1% of people have received the refunds that were due by now.”
A major exporter, who did not wish to be identified, echoed this view. “The refunds are simply not being credited to any bank account and the government can say whatever it may to the press but exporters are still suffering,” he said. “They [the government] care about managing headlines more than managing business sentiment in this country.”
Missed deadlines
Spurred into action by the protests over delayed refunds, the Goods and Services Tax Council had set up a committee headed by Adhia in September to look into the problems exporters were facing in the new tax regime.
A solution seemed to have been reached on October 6 when the council announced, “Within the next 4 days, that is by October 10, 2017, the held-up refund of integrated GST paid on goods exported outside India in July would begin to be paid. The August backlog would get cleared from October 18, 2017, and refunds for subsequent months would be handled expeditiously.”
Exporters took this to mean that if refunds for August started coming in from October 18, then the government would have finished making payments for July before that date. But those deadlines seem to have been missed.
“They have started the process of providing refunds but a lot of people are not getting it,” said Gupta of the Engineering Exports Promotion Council. “The refunds are not coming at the pace they should.”
On October 8, Adhia assured exporters that all refunds would be paid by November-end. However, he added that these would include input tax credit – a tax deduction businesses are allowed on the basis of the taxes they pay while buying inputs to provide goods and services – which would take some time to be cleared.
In the face of the sector’s struggles, Adhia said that manufacturing exporters, or businesses that manufacture goods for export, would no longer have to pay taxes, for the remaining six months of the financial year. “For a period of six months, we are actually reverting to the pre-GST scenario.” Once this period was over, the government would launch an e-wallet for exporters where a notional credit would be made to their accounts based on their recent turnover, he said. They could then use this credit to pay their Goods and Services Tax liabilities.
Manual process
However, exporters continue to be worried, and a change in the rules made earlier this month has added to their concern. Under the new rule, exporters will receive refunds in the bank accounts they have registered with the Central Board of Excise and Customs instead of the accounts mentioned in their Goods and Services Tax registration forms. The change was supposedly made to speed up payments. But exporters fear it will only delay the process further.
“The customs department will take its own time to finalise the list of people who need to be given refunds and provide it to the bank to credit the refund amount,” said Gupta.
Ajay Sahai, director general and chief executive officer of the Federation of Indian Export Organisations, which promotes India’s international business, explained how the process would work: “In the shipping bill you have IGST [integrated GST] that you have paid to the government. Customs department will verify if the shipment has gone, then it will clear the refunds. They will put it in a tabular sheet and sum total it. They will authorise banks to debit their account once tabulated. The money will flow to the bank account.”
Sahai said that while this may cause additional trouble to some exporters, who would have to ensure their bank account in both the Goods and Services Tax registration and Central Board of Excise and Customs registration is the same, most people would not face this problem. “Everyone I know seems to have a CBEC account and as long as the money comes, I don’t care in which account it comes,” he said. “I have to pay bonuses to employees for the festive season. The government should just focus on releasing it [the refunds] quickly.”
However, he said he did not expect the held-up payments to be made any time soon. “Since the GST Network cannot handle it online, the manual system will just take more time and ensure that Diwali goes dry,” he explained.
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