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GST squeezes exporters’ order books

GST squeezes exporters’ order books
15% drop across industries and product categories till Oct: FIEO

Two months after the implementation of the goods and services tax (GST), the order books of exporters are said to have taken a hit, with estimates pegging the impact by up to 15 per cent across industries and product categories. The impact could be seen even as exports saw double-digit rise in August year-on-year (y-o-y).

According to an assessment by the Federation of Indian Export Organisations (FIEO), the large drop was seen in export orders that were meant to be delivered until October.

The dip, registered over a period of two months since July (when the GST was introduced), was largely on account of exporters not fulfilling orders due to lack of credit, said Ajay Sahai, director general at FIEO. The liquidity crunch had forced many to use available resources to manage existing business operations rather than fulfilling orders from abroad, he said.

Though export growth accelerated in August, it is largely y-o-y. For instance, exports declined to Rs 22.54 billion in July from Rs 23.56 in June. In August, these slightly revived to $23.81 billion, but not to the extent of the levels seen in April and May. Exports were $24.63 billion in April and Rs 24.01 billion in May.

Bhaskar Sarkar, executive director at Engineering Export Promotion Council (EEPC), corroborated this by saying the percentage hit was higher for exporters handling products with a longer gestation period. “Merchant exporters, as well as those whose products require two-three months to be sourced, processed, and shipped, have been hit hard owing to their capital being tied up longer,” Sarkar said.

Exporters were earlier allowed dutyfree import of goods that are used for the manufacturing of export products. But, under the GST, they would have to pay the duty upfront and apply for refunds later.

The issue of a liquidity crunch under the new GST regime was flagged by exporters as the most challenging issue. Their costs have risen by up to 1.25 per cent (freight on board value) following the implementation of the new tax regime, according to estimates.

The figure is rising, as late refunds pinch smaller players hard, while larger entities face difficulty in streamlining operations, say experts.

In addition, exporters have continued to point out the difficulty in getting refunds have not eased. This is mainly because the refund process has been delayed, because the date of filing the refund documents has been extended by the government. The filing of documents for GSTR-1, GSTR-2 and GSTR-3 have been extended to July 10, October 31 and November 10, respectively, the EEPC said.

This extension effectively means the July refunds will only be available in the third week of November, at the earliest, the EEPC said. Similarly, export refunds for the month of August will be pushed back to December and this is expected to have a cascading impact on the September refunds.

Also, exporters have alleged that since the GST roll-out, refunds from state governments for taxes paid under the Duty Drawback Scheme have stopped.

A similar issue is playing out over duty scrips: Its scope has been reduced as a tax-paying instrument. In August, the government had instituted a 12 per cent tax on the sale of scrips received for incentive schemes such as the Merchandise Export from India Scheme (MEIS), for the first time. Scrips received by exporters under the Services Exports from India Scheme and the Incremental Export Incentivisation Scheme, apart from the MEIS, will also be taxed.

The government’s tax move was slammed by exporters, who said this had no justification and would hit their shipments. Subsequently, the GST Council announced last week that this was being reduced to four per cent. But, while scrips were allowed to be utilised for the payment of excise, service tax and valueadded tax in the pre-GST era, this may now only be applicable for the payment of basic Customs duty.

The Business Standard, New Delhi, 16th September 2017

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