No tax refund, no working capital: How GST is hurting Indian exporters

Exporters claim that delays in refunds under the new tax code has tied up a substantial amount of their money, thus harming their businesses.

Delays in processing tax refunds under the new Goods and Services Tax regime has locked up the funds of exporters, hurting their businesses and affecting their ability to be competitive in international markets.

On September 19, a delegation of exporters met Revenue Secretary Hasmukh Adhia, who is heading a committee set up to look into the GST-related issues that India’s export sector is facing.

During the meeting, the Federation of Indian Export Organisation reportedly said that the government should fast-track the refunds process for exporters or as much as Rs 65,000 crore of their money could get stuck in the July-October period, affecting their ability to do business.

The Goods and Services Tax, which was implemented from July 1, subsumes all the indirect taxes that businesses earlier paid the Centre and states separately, with the aim of creating a common market. It involved a complete overhaul of the tax filing system.

Under this regime, companies are given the opportunity to claim refunds for the taxes they pay while buying inputs for their businesses, such as raw materials. However technical glitches, among other things, have meant that the government has repeatedly pushed back the deadline for filing GST returns, delaying tax refunds too. Exporters claim that they are suffering the most.

Earlier this month, the Union government took note of the complaints of exporters and ordered the Adhia-led committee to be set up. It has been tasked with providing recommendations to fix the problems exporters face. The committee is scheduled to meet next on October 6. However, it remains to be seen if the GST Council, headed by Finance Minister Arun Jaitley, acts on its recommendations.

Blow to exports

Indian exports were not doing particularly well in the pre-GST months of this year in the first place. The rate of export growth in rupee terms slowed during the March-July period before rising again in August. But exporters organisations now fear that this growth could be undone by the negative effects of GST.

In its presentation to the government, the Federation of Indian Export Organisation said that the exports to gross domestic product ratio, an indicator of the relative importance of international trade in a country’s economy, is down to 20% from its 2013 high of 25.43% at a time when Indian exporters are facing tough competition from countries such as China, Bangladesh and Vietnam in international markets. With the chaos following the implementation of GST, it said that it feared that the worst is yet to come.

Working capital blocked

Exporters are required to pay GST upfront for the inputs they buy from their suppliers. They can then claim tax refunds from the government, as exports are tax free.

A spokesperson from the Federation of Indian Export Organisation said that a sharp liquidity crunch has gripped the majority of exporters as their funds, paid as tax, are locked up with the government, with refunds for taxes paid for the July period only expected in December.

The process of claiming refunds is taking much more time than was envisaged because deadlines for the filing of returns are constantly being pushed back. For instance, due to technical snags in the GST portal, the government pushed the final deadline for filing the GSTR 1 return for the month of July to October 10 from the earlier deadline of August 10. GSTR 1 is a detailed compilation of all sales invoices generated by a business in a month.

According to an information booklet prepared by the government on GST for exporters, 90% of the refund amount would be processed within a week of the receipt of the refund application while the rest 10% would be paid within a maximum period of 60 days. The booklet says that “interest @ 6% is payable if full refund is not granted within 60 days”.

However, so far, no one has got refunds yet, said a tax advisor to an industry association, speaking on condition of anonymity. “The returns are not being filed in the right manner as it was anticipated, so nobody in the government is concentrating on providing refunds,” the advisor said.

A spokesperson for the Federation of Indian Export Organisation said that the government should not wait for final filings – when GSTR 1, GSTR 2, and GSTR 3 are all filed, at the end of which the total GST liability/refund is calculated. He said that the government should instead release refunds based on GSTR 3B returns. This is a simplified return that includes only a summary of invoices raised in a month instead of details of each invoice raised.

“Exporters were hoping that refunds for July will come in August but because the return dates are postponed, the refunds will not come before December,” said a spokesperson for the Federation of Indian Export Organisation. “We are saying that refunds should be given based on GSTR 3B.”

This was echoed by Suranjan Gupta, Additional Executive Director of Engineering Exports Promotion Council, a trade body sponsored by the government. Gupta said that the delay between tax filing and the processing of refunds is particularly harmful to small companies as they are forced to take additional loans to fund their day-to-day business activities. He said that these small firms often end up paying higher interest rates too.

“The long gap between payments of tax on inputs and getting refunds will make exports expensive as firms will have to borrow money to pay tax and interest,” he wrote in an emailed response. “The micro and small exporters would be particularly hit as the cost of credit to them is very high.”

Services exporters denied refunds

Software export associations such as Nasscom have their own list of grievances, which have been brought to the notice of the GST Council. Software exports are badly hit as firms that export software services are not eligible for tax refunds on the purchase of capital goods that they use to provide these services, said Bishakha Bhattacharya, Senior Director and Head – Public Policy and Government Affairs at Nasscom.

For software export companies, capital goods could include servers, computers and networking devices, among other things.

“This again seems to be an unfair denial of input tax credit,” Bhattacharya said. “You don’t have duty exemptions, which is available for others. You are also now denied refunds for GST paid on capital goods.”

A software exporter from Pune, who spoke on condition of anonymity, said that his company earlier used to save about Rs 3 crore in exemptions each year under the government’s Software Technology Parks of India scheme, established in 1991 to boost exports. Now, he claimed, his company has already paid Rs 25 lakh in import duties in a month, and is waiting for GST refunds.

In the earlier tax regime, companies part of the Software Technology Parks of India scheme were entitled to claim exemption on taxation on capital goods. This exemption is not available under GST. Thus, software exporting companies are now demanding that the government refund the taxes they paid while acquiring capital goods.

“There were various exemptions that STPI [Software Technology Parks of India] companies used to get….[But these] are now gone,” said Vidyadhar S Purandare, Secretary, Software Export Association of Pune. “They have now asked STPI companies to pay integrated GST and central GST and then claim benefits which is limited to basics customs duty. With this, the cash flow requirement has gone up.”

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“My body instantly craves chai and samosa”

German expats talk about adapting to India, and the surprising similarities between the two cultures.

The cultural similarities between Germany and India are well known, especially with regards to the language. Linguists believe that Sanskrit and German share the same Indo-Germanic heritage of languages. A quick comparison indeed holds up theory - ratha in Sanskrit (chariot) is rad in German, aksha (axle) in Sanskrit is achse in German and so on. Germans have long held a fascination for Indology and Sanskrit. While Max Müller is still admired for his translation of ancient Indian scriptures, other German intellectuals such as Goethe, Herder and Schlegel were deeply influenced by Kalidasa. His poetry is said to have informed Goethe’s plays, and inspired Schlegel to eventually introduce formal Indology in Germany. Beyond the arts and academia, Indian influences even found their way into German fast food! Indians would recognise the famous German curry powder as a modification of the Indian masala mix. It’s most popular application is the currywurst - fried sausage covered in curried ketchup.

It is no wonder then that German travellers in India find a quite a lot in common between the two cultures, even today. Some, especially those who’ve settled here, even confess to Indian culture growing on them with time. Isabelle, like most travellers, first came to India to explore the country’s rich heritage. She returned the following year as an exchange student, and a couple of years later found herself working for an Indian consultancy firm. When asked what prompted her to stay on, Isabelle said, “I love the market dynamics here, working here is so much fun. Anywhere else would seem boring compared to India.” Having cofounded a company, she eventually realised her entrepreneurial dream here and now resides in Goa with her husband.

Isabelle says there are several aspects of life in India that remind her of home. “How we interact with our everyday life is similar in both Germany and India. Separate house slippers to wear at home, the celebration of food and festivals, the importance of friendship…” She feels Germany and India share the same spirit especially in terms of festivities. “We love food and we love celebrating food. There is an entire countdown to Christmas. Every day there is some dinner or get-together,” much like how Indians excitedly countdown to Navratri or Diwali. Franziska, who was born in India to German parents, adds that both the countries exhibit the same kind of passion for their favourite sport. “In India, they support cricket like anything while in Germany it would be football.”

Having lived in India for almost a decade, Isabelle has also noticed some broad similarities in the way children are brought up in the two countries. “We have a saying in South Germany ‘Schaffe Schaffe Hausle baue’ that loosely translates to ‘work, work, work and build a house’. I found that parents here have a similar outlook…to teach their children to work hard. They feel that they’ve fulfilled their duty only once the children have moved out or gotten married. Also, my mother never let me leave the house without a big breakfast. It’s the same here.” The importance given to the care of the family is one similarity that came up again and again in conversations with all German expats.

While most people wouldn’t draw parallels between German and Indian discipline (or lack thereof), Germans married to Indians have found a way to bridge the gap. Take for example, Ilka, who thinks that the famed differences of discipline between the two cultures actually works to her marital advantage. She sees the difference as Germans being highly planning-oriented; while Indians are more flexible in their approach. Ilka and her husband balance each other out in several ways. She says, like most Germans, she too tends to get stressed when her plans don’t work out, but her husband calms her down.

Consequently, Ilka feels India is “so full of life. The social life here is more happening; people smile at you, bond over food and are much more relaxed.” Isabelle, too, can attest to Indians’ friendliness. When asked about an Indian characteristic that makes her feel most at home, she quickly answers “humour.” “Whether it’s a taxi driver or someone I’m meeting professionally, I’ve learnt that it’s easy to lighten the mood here by just cracking a few jokes. Indians love to laugh,” she adds.

Indeed, these Germans-who-never-left as just diehard Indophiles are more Indian than you’d guess at first, having even developed some classic Indian skills with time. Ilka assures us that her husband can’t bargain as well as she does, and that she can even drape a saree on her own.

Isabelle, meanwhile, feels some amount of Indianness has seeped into her because “whenever its raining, my body instantly craves chai and samosa”.

Like the long-settled German expats in India, the German airline, Lufthansa, too has incorporated some quintessential aspects of Indian culture in its service. Recognising the centuries-old cultural affinity between the two countries, Lufthansa now provides a rich experience of Indian hospitality to all flyers on board its flights to and from India. You can expect a greeting of Namaste by an all-Indian crew, Indian food, and popular Indian in-flight entertainment options. And as the video shows, India’s culture and hospitality have been internalized by Lufthansa to the extent that they are More Indian Than You Think. To experience Lufthansa’s hospitality on your next trip abroad, click here.


This article was produced by the Scroll marketing team on behalf of Lufthansa as part of their More Indian Than You Think initiative and not by the Scroll editorial team.