India’s Goods and Service Tax (GST): How does it affect import and export activities from and to India?

The product base categorised tax system, known as Goods and Service Tax, is an unified indirect tax system implemented in India on July 1, 2017 and has replaced many indirect taxes in India, such as the excise duty, value-added tax (VAT), and services tax. It is a comprehensive, multi-stage and destination-based tax that is levied on every value addition and economic condition.

The Goods and Services Tax Act came into effect on the 1st of July, 2017 and is levied on every point of sale, from manufacturing to the final sale to the consumer. It aims to streamline the taxation system by applying a single tax rate across the country for the supply of goods and services. It is designed to eliminate cascading effects, promote transparency, and create a common market across India.

1. Manufacture and Production: GST is levied on the sale of raw materials, components, and intermediate goods used in the manufacturing process. Manufacturers and producers pay GST on the value addition at each stage of production.
2. Wholesale and Distribution: GST is charged on the sale of goods from manufacturers to wholesalers and distributors. These businesses add their margin to the cost price and collect GST on the total selling price.
3. Retail: Retailers collect GST on the sale of goods to end consumers. The GST collected by retailers is inclusive of the GST paid at previous stages of the supply chain.
4. Services: GST is also applicable to the supply of services, including professional services, consulting, healthcare, transportation, hospitality, and other service sectors. Service providers charge GST on the services rendered to clients or customers.
5. Import and Export: GST is imposed on the import of goods into the country, known as Integrated GST (IGST) in the case of inter-state imports. Exported goods are typically zero-rated, meaning GST is not levied on exports, but exporters can claim refunds for GST paid on inputs used in the production of exported goods.

Cultural, economic factors and local priorities influence GST implementation across different regions in India. While GST aims for uniformity, regional disparities lead to diverse experiences across states and union territories. The dual tax system comprises Central GST (CGST) and State GST (SGST), allowing states autonomy in determining SGST rates and rules. Interstate transactions are subject to Integrated GST (IGST), but interpretations and implementation may vary among states. Compliance, administrative procedures, and enforcement mechanisms differ across states, influencing GST practices. Sushil Singh, National Head of Customs and Operations at Broekman Logistics India, mentions: “Some states offer exemptions and incentives, impacting tax treatment and compliance. As India specialist, we are able to navigate our industrial partners to these regional nuances efficiently to ensure seamless delivery while complying with applicable tax laws and regulations.”

When an organisation from Europe exports products to India, the Goods and Services Tax (GST) in India affects them primarily in terms of compliance and pricing. Firstly, they need to understand the GST implications for their exported goods, including whether they are subject to GST, zero-rated, or exempt. This knowledge helps in accurately pricing their products for the Indian market. Secondly, they must ensure compliance with Indian GST regulations during customs clearance, including documentation requirements and payment of integrated GST (IGST) or customs duties, if applicable. Failure to comply with GST regulations can lead to delays or penalties, impacting the efficiency of their exports to India.

When an organisation from Europe imports products from India, the Goods and Services Tax (GST) in India can impact them in several ways. Karan Vij lists what organisations must consider: “Firstly, they may need to account for the GST paid on the imported goods as part of their overall cost structure. Secondly, they must ensure compliance with Indian GST regulations, which may involve understanding GST rates, documentation requirements, and procedures for claiming input tax credits. Additionally, fluctuations in GST rates or changes in regulations could affect pricing and profitability for those organisations.”

Overall, it is essential for organisations to stay informed about Indian GST laws and regulations to navigate the import and export process efficiently.