Talking points of President, FIEO on the Pre-Budget Consultation Meeting
December 6, 2017
Talking points of Mr Ganesh Kumar Gupta, President, FIEO on the Pre-Budget Consultation Meeting with the Hon’ble Finance Minister
At the outset, I would like to compliment the Government for undertaking the most revolutionary reform in the tax history through the introduction of Goods & Services Tax (GST). The pro-active action by the GST Council has resolved many issues faced by the stakeholders. We are sure that technical glitches in the GSTN will also be resolved shortly.
1 Sir, exports require special treatment under the GST regime. The refund system, howsoever efficient, would result in blocking of the capital of exporters in payment of GST from the date of procurement of inputs to exports. Therefore, depending on the duration of procurement of inputs, commercial production of output and its exports, the exporters’ money would be blocked. This is one of the factors which is blunting the competitive edge of exports. 29 members States of European Union (EU), Australia, Canada, Malaysia, etc. have therefore provided exemption from VAT/GST on inputs required for export production. These countries have very low rate of interest, extremely efficient online refund mechanism and much educated exporters. Despite this, if these countries have followed an exemption regime for exports, there has to be some merit into it. I would, therefore, urge to provide exemption from IGST on all instruments providing basic customs duty free imports both of inputs and capital goods.
2 Lot of micro & small exporters would like to get all refund for exports at one place. At present, for refund of the basic customs duty, they have to get duty drawback and for refund of GST, they have to file separate application. This adds to the transaction time and cost. We, therefore, propose a comprehensive Duty Drawback Scheme which covers the incidence of both basic customs duty and ITC. The Drawback Committee may calculate two rates one covering only basic customs duty on the inputs and other including both basic customs duty and Input Tax Credit. The exporters who wish to avail comprehensive drawback will forego GST claim. This will provide huge relief to micro & small exporters particularly in carpets, handicrafts, textiles, agro & allied sectors where they take supply from unregistered suppliers and find it extremely difficult to keep detailed record required for ITC refund.
3 The freight both air & sea for exports was exempted under the pre-GST regime as the place of supply for such services was destination of goods irrespective of location of supplier of such services. In the GST regime, freight has been subject to 18% and 5% respectively for air and sea. This affects exporters particularly where freight cost contribute to a significant portion of exports. We would, therefore, urge to provide exemption from GST both on air and sea freight since the destination of goods is outside India.
4 The job work is revenue neutral as credit flows between principal and job worker. However, high rate of job work for most of the sector and more importantly maintenance of detailed record has affected job workers throughout the length and breadth of the country. Most of the job workers are illiterate or semi-literate who are not at all capable of maintain invoice or challan. We, therefore, would request that job work may be exempted from GST so that the compliance burden on job worker is eliminated. If for any reason complete exemption is not possible, we would suggest that all job works may be subject to 5% GST (as has been done for textile) so as to avoid classification dispute and bring uniformity for ease in administration.
5 On the direct tax front, we would request you to give impetus to marketing through tax deductions. Many countries have become extremely aggressive to push their exports. Unfortunately, we have very meager allocation for Market Access Initiative (MAI) Scheme which supports export marketing. FIEO has proposed for creation of an Export Development Fund to the tune of at least 0.5% of total exports to support export marketing. Alternatively, Government may provide 100% tax deduction on the expenditure made by the exporters for overseas marketing. Such a move will help the showcasing of Indian products overseas.
6 Creation of employment is the biggest challenge faced by the country. If we have to reap demographic dividends, we have to provide jobs to millions who are seeking jobs on month on month basis. We would urge the Government to provide fiscal support to units who provide additional employment in export sector. Such a Scheme will also help the workers to move from informal employment to formal employment, which is a priority of the Government. Incentives may be provided based on twin criteria of growth in exports and growth in workers so that while on the one hand exports is increased, on the other, the employment intensive units also gets a boost.