GST Exemption Extended for Export Units and IT Parks Until March 2019
The Central Board of Indirect Taxes and Customs (CBIC) has extended the Integrated Goods and Services Tax (IGST) and compensation cess exemption for Export-Oriented Units (EOUs) and Software Technology Parks (STPs) until March 31, 2019. This relief also applies to exporters under the EPCG and Advance Authorisation schemes. The extension addresses working capital issues for exporters due to initial delays in IGST refunds, serving as an interim measure until the proposed e-wallet scheme is fully implemented.
The Central Board of Indirect Taxes and Customs (CBIC) recently announced an extension of the Integrated Goods and Services Tax (IGST) and compensation cess exemption. This relief, now prolonged until March 31, 2019, applies to Export-Oriented Units (EOUs) and Software Technology Parks (STPs) on their supplies. Additionally, exporters operating under the Export Promotion Capital Goods (EPCG) scheme or the Advance Authorisation (AA) scheme will also benefit from this extended exemption.
India's Finance Minister, Arun Jaitley, stated the government's commitment to strengthening the nation's export sector. Recent economic challenges, including the rupee's depreciation against the dollar and an increasing current account deficit, prompted a re-evaluation of issues within the export-import (EXIM) sector. Given that the IGST refund system was still being stabilized, exporters required immediate assistance. The upfront payment of IGST, followed by a refund claim, could strain exporters' working capital. Consequently, this extension is particularly beneficial for numerous Micro, Small, and Medium Enterprises (MSMEs) involved in exports.
Customs regulations already exempt EOUs and STPs from basic customs duty and special additional duty. Regarding domestic taxation, GST provisions cover zero-rated supplies, a departure from earlier excise or VAT regimes. The refund process under GST encountered initial difficulties, resulting in delayed IGST refunds and capital blockage for EXIM businesses. Although the IGST exemption was initially suspended during the first months of GST implementation, concerns about refund delays for exporters led to its notification on October 13, 2017. The CBIC subsequently extended this exemption, pending the introduction of an e-wallet scheme designed to address and resolve these refund delays efficiently.
The proposed e-wallet scheme aimed to provide electronic wallets for all importers and exporters. The Directorate General of Foreign Trade (DGFT) would credit a notional amount, essentially virtual money, to EXIM business accounts. This credited sum would then be used to cover taxes on inputs and raw materials, thereby preventing fund blockage. The IGST exemption had previously been prolonged until October 1, 2018, based on the expectation that the e-wallet system would be operational by then. However, the e-wallet's introduction requires more time, leading to the current extension of IGST exemptions until March 2019. The intention is for a permanent solution, like the e-wallet scheme, to be implemented promptly, eliminating the need for temporary measures such as the IGST exemption.