India is the seventh largest economy in the world. It is the world’s fastest growing economy preceding the major economy of China. The basic tool to evaluate the growth of any country is Balance of Payment (BOP), which comprises the transactions in the Capital account, Current account and the reserves.
Trade is considered as an important determinant of the economical growth. It becomes necessary to keep an eye on the trade performance of India in the domestic market as well as in the International market.
Growth in Import & Export is favorable for a healthy economy internationally. It depicts the growing domestic demand and strengthening of the currency.
However, India various duties levied increase overall value to the Indian Importers & Exporters and decrease the competitiveness in the market. Several schemes have been introduced to promote trade activities and simplifying the procedural chaos. The new proposed bill in the constitution for introducing compliance is GST.
GST (Goods and Services Tax) is the main agenda of the government at the moment. GST, if Implemented in an empirical way will suspend the taxation web and thus secure the loss of tax credit and compliance at different levels.GST is believed to be the revolutionary regime in the history of Indian taxation system.
Implementation of the bill is going to be an event of speculation for almost every Industry in India.
A mandatory constitutional amendment has to be made for levying GST on Imports. It has been proposed that merchandise Imports coming to India will face GST on destination criteria. Duty levied under GST for Import in services will be based on reverse charge method. Indian has signed several trade agreements under which Imports coming from such partner countries are not liable to pay Import duty but with the implementation of GST they will be subjected to CGST and SGST having a national treatment.
Exports would be relieved of the burden of GST by zero rating. As of now, In Foreign trade policy exports enjoy tax exemption at state as well as central level also government have given various incentives for export promotion. Under GST structure Centre and States will separately administer a CGST and SGST respectively. It is known that CGST will subsume Central Excise duty, Service tax and the Additional Customs duties and for State, SGST will subsume VAT and perhaps also Entry tax (at the State level) and other taxes but export duty would not be subsumed. It is probable that service sectors would be required to file multiple refund claims for SGST element in every State, leading to increase in compliance cost and hardships. Moreover, increase in rates would lead to higher accumulation of credits and consequent impact on Company’s cash flows.
Government has to re-evaluate the relative schemes meant for the recovery or exemption of taxes on inputs. The Government must integrate FTP with the ‘Make in India’ agenda. The Government should rationalize the inverted duty structure.
There is a ray of hope for every Industry if GST comes in practice. Hope it comes as good and great tax system.