UN, WB to enjoy tax exemptions

Govt to soon release list of such agencies

Select multilateral institutions such as the UN, World Bank, International Monetary Fund will continue to enjoy exemption from import duties under the upcoming goods and services tax (GST) regime by way of refunds but not all projects funded by them may enjoy the same facility. 

The government is expected to soon come out with a list of institutions and projects funded by these international agencies that will continue to be tax exempt under the GST. 

“All supplies to the WB, IMF and UN for their consumption will continue to be exempt. These institutions will receive a unique identification number,” an official said. He added that for projects financed by these institutions a final decision was yet to be taken. Set to be rolled out from July 1, the GST will subsume indirect tax levies like countervailing duty and special additional duty. 

Multilateral institutions enjoy exemptions from taxes under the United Nations (Privileges and Immunities) Act, 1947. This law also covers foreign missions. These institutions can apply for a tax refund if the value of a single supply  is more than Rs 5,000. 

The official said the government was planning to include exemptions for UN-backed institutions and other multilateral agencies in the Central GST Bill, but instead decided to notify a list of agencies. For projects financed by these agencies, there is a view that while it will be difficult to do away with the current exemptions on CVD and SAD, imposing CVD will encourage procurement of capital goods from within the country. 

“While it seems difficult to do away with a bulk of exemptions for projects financed by these international agencies, a view is emerging that these benefits will accrue to the capital goods industry in other countries. Sourcing and procurement from within the country should be encouraged,” the official said.

The WB, UN and Asian Development Bank fund a slew of infrastructure and other projects in the country. The CVD and SAD are imposed to create a level-playing field between local and foreign manufacturers of a commodity. Foreign producers are at times able to sell a product cheaper than local manufacturers on account of subsidies and sops from their governments.

However, experts suggested that the government might notify a few projects financed by these institutions under the provision of deemed projects, but would eventually do away with those. 

“The government is yet to issue a list of exemptions based on end use. For instance, exemption for a product supplied to a particular project could come under the provision of deemed exports and such could projects could be notified,” said Pratik Jain, leader, indirect tax, PwC India. 

Satya Poddar, senior tax adviser, EY, said most advanced countries like Canada and Australia did not offer tax exemptions for projects funded by these international agencies. “Going forward, any of the projects financed by these agencies will not enjoy an exemption, although the government may agree to continue exemptions for projects that are halfway through.”