Exporting woes

Govt needs to sort out the GST refund process quickly

Latest reports suggest India’s automobile exports could be heading for their worst performance in six years. Car exports fell more than 4 per cent over the April to October period of the current financial year. This is in contrast to the over 15 per cent increase during the same period in the last financial year. In fact, for the full financial year 2016-17, passenger vehicle exports grew by over 16 per cent — the best pace witnessed since 2012-13. All the key players in car exports have witnessed significant declines. Hyundai, the second biggest exporter, saw a fall of 18 per cent in shipments during the current financial year. Quite a few others fared worse and automobile industry members and associations blame this on the flawed implementation of the goods and services tax (GST).

To begin with, they claim that the incidence of taxation went up far too steeply. In some cases, the compensation cess went up from 1-4 per cent to 1-22 per cent in the GST and, consequently, the quantum of cash needed to meet the cess saw a sharp rise. But beyond the exact quantum, the GST continues to suffer from systemic glitches. Manufacturers have been unable to file claims since July as the current system of making payments upfront and claiming input tax credit refunds is not functioning properly. This, in turn, continues to create a problem of working capital for exporters as a lot of money is stuck in unclaimed refunds; according to one estimate, the total amount of refunds stuck is over Rs 1,000 crore. 

Another critical issue is whether the refund amount is correct. Even though the law agrees to zero-rating of exports, the refund rules provide no guarantees that an exporter will receive a refund that equals the amount of GST paid. Official data reveal that India’s exports contracted by 1.1 per cent in October — the first such fall in 14 months. The decline was led by sharp falls in major labour-intensive sectors such as leather and leather products, gems and jewellery, handicraft, readymade garments, and carpets. Almost across the board, exporters suffered from issues related to the GST. Services exports, too, remained flat. 

It is not the case that the Union government, or indeed the GST Council, has been blind to the needs of exporters. To find a structural solution to the issue of claiming refunds, the GST Council did announce that an e-wallet would be introduced so that exporters could carry on with their business without facing a liquidity crunch. However, the actual implementation is still a few months away. Both the National Payments Corporation of India and the National Securities Depository are reportedly interested in operating the proposed e-wallet system, but it is unclear who the government will choose to develop the notional credit system — the GST Network is one option being considered. Cognisant of these delays, the government did, just last week, allow exporters to manually file GST refunds with tax officials so as to hasten clearance of dues and ease liquidity. But clearly, more needs to be done.