GST has revolutionized the archaic tax structure and is leaving a considerable impact on business processes in the country. It is evident that GST will also transform the structure of export/import taxation. Let’s review certain important implications in the foreign trade taxation structure brought about by GST.

Traditional systems

In the earlier system, there was tax applicable at different points of business transaction with a foreign entity. These included –

  • The import of goods which were liable for import duties such as customs duty,
  • Countervailing duty (equivalent to excise duty) charged for import of specific goods listed by the importing country’s government as per their ForeignTrade Policy.
  • Special additional duty (equivalent to value added tax) which was applicable to imported goods.
  • Import of services subject to Service Tax

New foreign trade taxation structure

  1. Introducing changes: GST on imports

Previously, indirect taxes got imposed on service and goods imported. However, the present structure introduces IGST, which replaces the indirect taxes prevalent now. Substances and materials like petroleum products and pan masala will continue attracting countervailing duties. Some of the existing duties on imports that will continue to be levied even under the current structure are:

  • Customs duty
  • Protective taxes
  • Education Cess
  • Safeguard duties
  • Anti-dumping duties

These will remain as they are, the only exception being the IGST. Suppliers and manufacturers must have an idea of the tax clauses. Since the new structure introduces quite a few changes, it’s crucial to take a look at them.

  1. Clauses for taxable imports

Under the new GST regime, service imports will be taxable if:

  1. The service supplier stays abroad
  2. Recipient of the services reside within the country
  • The location for the supply of such services is within India
  1. The recipient and supplier of services aren’t just mere establishments of distinct entities
  1. Impacting exports

If we take a close look at the new GST structure, exports are nothing but ‘zero-rated supplies’. Suppose, particular services or goods are getting exported from the country and GST is being paid at a specified point of supply. The trader will have the option of not paying the IGST. In case of payment, he or she can claim refunds immediately. However, it would be imperative to include GST invoices and payment details in the bill.

  1. Filing returns are necessary

It is crucial to file monthly returns under the GST tax regime. Importers have the option to declare goods imported by them in table 5 and service imports in table 6 of the GSTR-2 form. Keeping a tab on monthly returns and filing these taxes is crucial, as GST payments will impact sales and supply at every point.

  1. Exemptions

Earlier, inbound shipments and goods shipped by aircraft did not come under the service tax module. However, under the new GST regime, there will not be such exemptions.

GST has impacted sales, supply, and manufacturing to a great extent. This includes foreign trade as well. In order to be up to date with the various GST tax compliances in your foreign trade business, it is a smart move to connect with GST advisory experts like BDO in India, they provide end to end guidance and advisory on how to leverage the extracting GST norms and comply with it successfully.

Published by Kristin Perry