GST hits exporters' order book hard; 15% drop till October: FIEO

Liquidity crunch made exporters use available resources to manage business operations

Two months after the roll out of the goods and services tax (GST) regime in July, the order books of exporters are said to have taken a hit with estimates pegging the impact to up to 15 per cent across industries and product categories.

According to an assessment by the exporters' body Federation of Indian Export Organizations (FIEO), the large drop was for export orders that were meant to be delivered until October.

The dip, registered over a period of two months since July, was largely on account of exporters foregoing 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 added.

Bhaskar Sarkar, Executive Director at Engineering Exports Promotion Council (EEPC), corroborated this by saying that the percentage hit was higher for exporters handling products with a longer gestation period.

“Merchant exporters, as well as those whose products require 2-3 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 duty-free import of goods that are used for the manufacturing of export products. However, under the GST, they would have to pay the duty upfront and apply for refunds later. 

The issue of liquidity crunch under the new GST regime was flagged off 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.

The wait for GST refunds

In addition to this, exporters have continued to point out that the difficulty in getting refunds have not eased.

This is mainly because of the refund process that has been delayed due to the government extending the date of filing of refund documents. 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 that the July refunds will only be available in the third week of November at the earliest, added the EEPC. Similarly, exports 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.

Uproar over duty scrips

A similar issue is playing out over duty scrips, the scope of which 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 Merchandise Exports from India Scheme, will 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 4 per cent. However, while scrips were allowed to be utilised for the payment of excise, service tax and the value added tax (VAT) in the pre-GST era, this may now only be applicable for payment of basic customs duty.