New Delhi, May 6, 2017

Committee to submit suggestions to GST Council on treatment of trade scheme and tax rates

The government will implement the Foreign Trade Policy (FTP) before the July 1 rollout of the goods and services tax (GST).

The ongoing mid-term review of the FTP, which was earlier scheduled for completion by September, would be done before the GST to incorporate changes necessitated by new tax norms, Commerce and Industry Minister Nirmala Sitharaman said on Saturday.

The FTP (2015-2020) had targeted $900 billion exports by 2020. Senior government officials had earlier said the figures could see a downward revision.

However, speaking at an industry consultation meet organised by trade think tank RIS, Sitharaman on Saturday said there was no suggestion to do so.

On issues raised by exporters regarding the treatment of current incentive schemes for exporters, she added that a specific committee would be formed that would submit its suggestions to the GST Council.

Exporters are now allowed duty-free import of goods that go into the manufacturing of export products. However, under the GST, they will have to pay the duty upfront and apply for refunds later.

The government had promised that 90 per cent of refunds would be issued within the first seven days with 4-6 per cent of additional refunds if payments were late.

However, exporters had argued that significant working capital would be locked up under this system, Sitharaman said.

The other issue is that under the GST if exempt goods become inputs for products used finally for exports, export credits will not be provided for those products.

The three-member committee will include Commerce Secretary Rita Teaotia, the head of the committee on duty drawbacks, GK Pillai, and a finance ministry official.

The committee will submit its findings to the GST Council, which will have the final say.

The GST Council is set to meet in Srinagar on May 18-19 to fix the tax slabs for most goods and services.

Sitharaman said traders had suggested that the FTP should not focus solely on export promotion but look at trade as a whole and use the rupee as the preferred currency for trade.

"Trade in dollars, even with immediate neighbours like Myanmar and Nepal, pushes up transaction costs by 18-29 per cent. The scope of rupee trade in this regard is great,” said Sachin Chaturvedi, director-general of RIS.

On services trade, Sitharaman stressed that  Mode 2 issues, involving health and education would be in focus in the FTP. This will overshadow Mode 4 issues dealing with cross-border movement of trained professionals.

Rising protectionism has seen the US, Australia and Singapore place restrictions on Indian professionals, mostly in the  technology sector, over the past few months.

[The Business Standard]