Impact of GST on Imports in India

India is one of the fastest growing economy and holds the seventh place for having largest economy in the world. Trade is one of the most significant factors that leads to the growth of a country’s economy. Therefore, it is imperative to keep a tab on the trade performance in both the domestic as well as international markets.

With the introduction and implementation of GST launched on 1^st July 2017, there has been a change in the way business in India is done. GST has had a significant impact on the international trade (import and export) of the goods and services through the changes in the taxation structure and removal of certain indirect taxes and exemptions.

In this blog, we are going to discuss the impact of GST on imports and importers in India.

In the pre-GST tax system, import of the goods were subject to different import duties like custom duty, Countervailing duties of excise and special additional duty which is equivalent to VAT whereas import of services was subject to service tax.

Now, however, after the reformed tax structure has been introduced, the IGST has replaced the indirect taxes that were earlier imposed on import of goods and services. But, there are certain exceptions on imports of petroleum products and pan masala that attract levy of countervailing duties even after the GST regime. Moreover, apart from the IGST, education cess, customs duty and protective taxes such as safe guard duty and anti-dumping duty are also levied on import of certain goods. Whereas for the import of services only the IGST is levied.

As Article 269A mandates, constitutionally, that the supply of goods or services or both shall be deemed to be supply of goods or services in the course of import into the Indian territory and will attract IGST. It will be treated as deemed inter-state supplies.

IGST on import of services would be leviable under the IGST Act, the levy of the IGST on import of goods would be levied under the Customs Act, 1962.

Integrated Goods and Services Tax (IGST)

As per section 11 of the IGST Act, 2017 the place of supply of goods, imported into India shall be the location of the importer. Thus, if an importer, say is located in Maharashtra, the state tax component of the integrated tax shall accrue to the state of Maharashtra.

The import of services under GST is taxable if it meets the following conditions:

1. When the supplier of service is located outside India.
2. When the recipient of service is located in India.
3. Place of supply is in India.
4. The recipient and supplier of service are not establishments of a distinct persons.
5. The importer of services will have to pay tax on reverse charge basis.
6. In respect of import of online information and database access or retrieval services (OIDAR) by unregistered, non-taxable recipients, the supplier located outside India shall be responsible for payment of taxes.

Taxability on Import of Goods and Services in GST

1. IGST will have to be paid when the importer receives the delivery of the imported goods as compared to that of the domestic goods where IGST has to be paid on a monthly basis.
2. CVD was earlier charged on the valuation of MRP principle. However, now IGST will include CVD and it will be charged on the transaction value, under the GST regime.
3. Taxes that are paid during the import is now available as a credit under the new law, under the ‘Import and Sale’ model which wasn’t available in the pre-GST regime.
4. The Government might change the Foreign Trade Policy and Custom Role along with different types of notifications for exemptions such as EPCG, Duty Drawback, Advance Authorisation, MEIS, Duty credit scrips SEIS, etc., in order to align with the GST.
5. Withdrawal of certain exemptions in GST might affect the FTP schemes and duty drawback rates. Moreover, removal of such exemptions will impact pricing, cost and working capital requirements of importers.