Govt denies exporters' claim of liquidity crunch under GST

Says media reports on problem of working capital based on 'wild estimates' but work is on to resolve all issues

Days after exporters informed the government that the Goods and Services Tax (GST) regime had created crippling liquidity in the sector, leading to stranded shipments and forgone orders, the government says these aren't true.

On Friday, the finance ministry said that the proportion of the problem was being inaccurately depicted and that it was working to soon resolve it.

"There are lot of apprehensions expressed in the media about the problem of blockage of working capital for exporters post GST. Various figures also being discussed on the blockage of such funds, which are wild estimates. Such media reports are not based on facts," the ministry said in a press release.

Exporters have complained over a severe lack of working capital since GST was introduced. They were earlier allowed duty-free import of goods that are used for making export products. With GST, they have to first pay the duty and later apply for a refund. This issue of liquidity crunch was flagged by exporters as the most challenging issue. Their costs rose by up to 1.25 per cent (Freight On Board value) after GST implementation, it is estimated.

On Tuesday, they raised the issue at a meeting with the committee on exporters' issues with GST, chaired by the revenue secretary, Hasmukh Adhia.

At present, the government says, there is no fund blockage for two-third of the value of export. On these, it says, traders have preferred the duty drawback scheme (DDS), instead of taking actual refund of input taxes. DDS was extended in the post-GST regime for three months, till the end of September.

Exporters allege that getting refunds for the state component of the levy had become very difficult under DDS, with the requisite mechanism not in place. "While it is still possible to get states to pay for their share of refunds under the Integrated GST, those refunds which are to be paid fully by them (states) are not materialising," Ajay Sahai, director-general of the Federation of Indian Export Organisations, had told Business Standard last week. The problem was across the country, he added.

Also, the government has said, the remaining third of export by value had always taken the normal refund route for taxes paid on inputs for central excise separately and for value-added tax separately. As these were made available only after actual export, there had been a normal blockage of funds for a period of five to six months, except for those using the facility of advance authorisation.

"Hence, the problem is not as grievous as is made out. Notwithstanding this, the Committee on Exports is working on issues of the export sector," it said on Friday.

During the meeting with Adhia, trade bodies had also said the deferring in mandatory filing of GST return forms, as well as extreme difficulty in receiving tax returns, was hurting export, sources had said. On this, the government has said that refund may be given by linking the GSTR-1 form with the GSTR-3B one. So, for July, where GSTR-1 has been filed, the authorities would be in a position to process the refund applications.

"Meantime, the authorities of state governments, as well as the central government, have been requested to clear the pending refund claims of central excise and VAT for the pre-GST period, so that exporters will get immediate relief," the government has said.

After growing in single digit in the previous three months, August export rose 10.3 per cent, up from close to four per cent in July. However, exporters and economists say the coming months would prove a challenge for merchandise shipment. Largely due to the tax refund issues under GST regime, exporters complaining of crippling liquidity and the rupee expected to climb steadily in the coming months.