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Zero-rating to ensure exporters go tax-free
November, 11th 2009

The longstanding demand of exporters for an exemption from payment of all input taxes may finally be met once the new GST regime is implemented.

As per the proposal in the first discussion paper circulated by the Empowered Committee of State Finance Ministers on Tuesday, exports will be zero-rated or exempted from payment of GST. Special economic zones will also be given a similar benefit. This will ensure that Indias exports remain competitive in the GST regime.

For imports, the committee has proposed a levy of both the central GST and state GST. While this could increase the landed cost of imports, full and complete setoff will be available on the GST paid on import of goods & services.

According to Fieo president A Sakthivel, zero rating of exports of goods & services will add to competitiveness of merchandise and services exports.

At present, exporters are being reimbursed only central taxes paid by them through various input duty reimbursement schemes. The taxes levied by the states are not being reimbursed, adding to their cost of production. Over the past few years, the government has examined various ways in which exporters could be refunded state taxes, without any success. Once GST is in place, exporters will also get relief from payment of state-level taxes. According to official estimates, state taxes account for 4-6% of the export value of a product.

On exempting SEZs from payment of GST, Mr Sakthivel said a clear statement on the issue would remove uncertainties paving the way for more investments in the zones. No benefits would, however, be given to sales from an SEZ to the domestic tariff area.

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