'Refund VAT to foreign tourists'

Commerce Minister Kamal Nath is pushing for a major policy change, one that would result in foreign travellers to India being refunded the value-added tax they pay on purchases made here.

If the proposal is implemented, India would join the ranks of many countries in the European Union, United Kingdom and hot shopping destinations like Singapore and Thailand which refund the duty paid by a visiting foreign national.

Speaking to Business Standard, Nath said, "India is going to be a major retail centre. Why should people go for shopping to Singapore and Thailand? Why should India not become a shopping centre?"

He said for this to happen, India would need to make several structural and policy adjustments. "There is a question of inverted duties. There are issues of taxation and levies, of which not all are refunded. No tax should be exported. We are going through structural adjustments to deal with this. We are addressing these issues."

When asked whether his ministry had raised a demand to this effect, Nath said it was imperative to put in place mechanisms which did not result in misuse and abuse. "These are currently being dealt with. We have got to ensure that in the volume of things of India, we put mechanisms into place which work."

Tax experts agree. "The general principle is that taxes and duties should not be exported. India does not provide refunds to foreign nationals and this makes our products uncompetitive. Unfortunately, we have multiple taxes and given our federal structure, it becomes a bit complex. The government should notify a mechanism for refunds at the central level. The states can then follow", said Ashok Dhingra, partner and head of indirect tax at Khaitan & Co.

Dhingra added that it would be difficult to predict the quantum of refunds India would allow.

According to Rakesh Kumar, executive director, Export Promotion Council for Handicrafts, the sale of popular items like handicrafts may go up 40 per cent if a refund mechanism is put in place."