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Impact of GST on Imports and Importers
India is one of the fastest growing global economy and in the way to becoming the new global manufacturing hub. While manufacturing activities are on rising, we are also witnessing expansion in foreign trade both imports and exports.
Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed
As per the Model GST Law, GST will subsume Countervailing Duty(CVD) and Special Additional Duty (SAD), however, Basic Customs Duty will continue to do its round in the import bills. BCD has been kept outside the purview of GST and will be charged as per the current law only.
GST on Import of Goods
The GST Act has defined import of goods as bringing goods into India from abroad. Accordingly, all imports into India will be deemed as inter-state attracting IGST. In addition to the IGST, the import would also be subject to Customs Duties. Thus, when goods are imported into India, IGST would be applied on the value of the goods and collected along with Customs Duty. The Customs Tariff Act, 1975 has already been amended to provide for levy of integrated tax and the compensation cess on imported goods, in anticipation of the GST rollout.
While, GST would be applied to imports in addition to the Basic Customs Duty, GST Compensation Cess can also be levied on certain luxury and demerit goods under the Goods and Services Tax (Compensation to States) Cess Act, 2017
Amount of GST on Imported Goods
HSN (Harmonised System of Nomenclature) code has been used for the purpose of classification of goods under the GST regime. Hence, the classification of the item for Customs Duty purpose and IGST calculation purpose would be harmonised.
The amount of GST payable on imported goods would be dependent on the assessable value plus customs duty levied under the Customs Act, and any other duty chargeable on the goods. The value of the imported article for the purpose of levying GST Compensation cess would be, assessable value plus Basic Customs Duty levied under the Act, and any sum chargeable on the goods in the same manner as a duty of customs. Thus, the IGST paid would not be added to the value for the purpose of calculating GST Compensation cess.
Below are some of the implications for imports and importers by virtue of GST implementation in India:
• Import as Inter-State Supply – Import into India will be considered as Inter-State supply under Model GST Law and accordingly will attract Integrated Goods and Services Tax (IGST) along with BCD and other surcharges.
• Import of Services – Model GST law accord liability of payment of tax on the service receiver, if such services are provided by a person residing outside India. This is similar to the current provision of reverse charge, wherein service receiver is required to pay tax and file return.
• Transaction Value based Valuation Principal – Model GST law has borrowed the concept of transaction value based valuation principal from current customs law for charging GST. This will have implication at the time of tax liability determination as currently CVD is charged on MRP valuation principle. Under the new regime IGST which subsumes CVD will be charged on transaction value. This may also require working capital restructuring. This may also reveal the margin of Service Provider which is currently not the case.
• Refund of Duty – Under the new law, tax paid during import will be available as a credit under “Import and Sale” model, whereas no such credit is available presently. Also refund of SAD which is available now, after doing specific compliance, no such restrictions are placed under GST.
• Withdrawal of Current Exemptions – The current customs import tariff is loaded with multiple exemption notifications which are likely to reviewed and possibly withdrawn or converted into a refund mechanism. This could mean change in the structure of export-linked duty exemption schemes under the FTP where the duty exemptions may get limited to exemption from payment of BCD, while IGST may not be exempted. Withdrawal of exemptions or changing them to refund mechanism could fundamentally change the attractiveness and viability of some of the key schemes under the FTP like EOU, STP, Advance authorization etc.
Calculating GST on Imports
• If the assessable value of goods imported into India is Rs. 100/-.
• Basic Customs Duty is 10% ad-valorem.
• Integrated tax rate is 18%.
Then IGST tax payable would be calculated as:
Assessable Value= Rs. 100/-
Basic Customs Duty (BCD) = Rs. 10/-
Value for the purpose of levying IGST = Rs. 110/-
GST – Integrated Tax = 18% of Rs.110/- = Rs. 19.80
Total Taxes = Rs. 29.80